Try watching the redesign in action.
It's not that bad. Yeah, it's still kinda ugly, but not quite as bad as that one screenshot. The trailer I posted there is for dark spyro, but he's just a recolor, nothing different.
Besides, as someone has pointed out, this is targeted at kids who wouldn't be familiar with the old Spyro anyway. Also, this game has 31 other characters for you to buy and despite the name, Spyro is no more important to the plot or gameplay than any of the others. This is a Skylanders game, not a Spyro game and I really wish they would have just left him out of it.
But be expecting more of this. Every time I look at a display in a store, it looks like rapid wolves have attacked it, so I'd say the game is selling well, and at eight dollars a pop for each character, very profitable too.