Personally I'm rather fond of the original palette. It remains colorful, cheerful and contrasting without being a pain to look at for long, while the beige, "lifeless" feel somehow lends to the fact that the scene appears to be set in a stage somewhat reminiscent of Super Mario Bros. 3. (I'm betting that was one of your inspirations.)
Considering this, and Drascoll's edit, I think it might benefit more from less contrast. At the least it might be interesting to see.
One more thing I'd recommend is adding depth to the foreground bushes, like others have said before. Also perhaps move the rabbit-thing's mouth a pixel or two to the left, and Mr. White's (I'm assuming he's the guy to the left?) red tie a pixel or two to the right.
And those blueish hills in the background, not sure what to call them, they seem very slightly jagged like they were made with the circle tool, or perhaps it's just me. You might want to consider moving those hills up, as right now they seem rather... Eh... Confusing? Distracting? Giving off a "cluttered" sort of feel. I suppose it's due to so many props in the same place while the sky is almost blank in comparison.
Well there's my two cents.