The networks used E/I requirements as a convenient excuse to drop cartoons. To me there's no reason why they can't do kid's shows that could be fun and educational at the same time other than they won't put out the money and take the easy way out with the Litton shows.
They originally dropped the cartoons because most of the audience had moved over to cable networks, and advertisers had followed (and Saturday mornings, in particular, lost the distinction of offering a concentrated audience of children). At one time, cartoons on Saturday mornings and weekday afternoons were able to earn some pretty impressive ratings, but that had largely ceased to be the case by the time those children's show blocks disappeared from broadcast TV.
I grew up in the seventies, and like many here I have fond memories of Saturday morning cartoons on what were then the "big three" networks, as well as the weekday blocks airing on the local independent TV station. The economics for each were a bit different For Saturday mornings, the appeal was a huge concentration of children watching combined with low adult viewing. That allowed the networks to profitably offer a large audience of children to advertisers in time slots that otherwise would have been relegated to unprofitable public affairs programming or left for local affiliates to program.
For independent stations, weekday children's blocks had a somewhat different appeal -- the available adult audience in those time periods was largely split between the network affiliates, leaving a still-substantial audience of kids who were largely ignored by those network stations outside of weekend mornings. By counterprogramming those time slots with kids shows, an independent station could grab a very impressive audience share that was valuable to them in that it gained them access to households that might otherwise have never tuned in their station. These stations then engaged in a very careful programming strategy to try to "flow" that audience into more adult programs. That's why "Scooby Doo" and "The Flintstones" would be followed by kid-oriented shows like "Gilligan's Island" or the "The Munsters", that would in turn feed into mass appeal shows like "Happy Days (Again)" or "The Brady Bunch", that would eventually lead to more adult fare like "All In The Family" or "MASH". It's a strategy that would have been far harder to implement without first getting those kids to tune into the station in the early afternoon. There was also some direct profit from the advertising that aired during the children's blocks -- but that was probably only moderately profitable because advertisers paid less for an audience of kids, and the advertising was also heavily seasonal. Thus, if the "Merv Griffith Show" earned a 6.0 rating, it might command a rate of $170 for a 30-second spot, but the same rating for "Scooby Doo" might only command $65 in the same market. And even at the lower rate, half the local spot positions would be unsold during the third quarter.
With the rise of Fox, the WB, and UPN in the late 80s and 90s this changed somewhat -- and, in particular, once Fox had NFL football their affiliates were perfectly capable of attracting adult audiences without first appealing to their kids. On top of that, the careful audience flow approach used to carry from afternoon kids shows into more adult fare did not work so well if a Fox affiliate wanted to run an early evening newscast. So Fox stations started dumping the Fox Kids product onto alternate stations in the same market, and those stations were often pretty weak competitors. Around the same time, kids started favoring Cartoon Network, Nick, and Disney, since those networks featured full-time (or close to full-time) kid-friendly programming versus a couple hours in the morning and afternoon on their local WB station. So kids shows on broadcast TV were no longer able to generate high ratings -- and the combination of low ratings with the lower rates for advertising during kids shows just killed the economics of the business.
Thus, by the year 2000, children's programming on broadcast channels was a dying business. Five years later, it was essentially dead. Like many here, I was saddened by its demise -- a part of my childhood disappeared when that happened. If I thought that there was a way that it could come back, I would personally be delighted. It would be great to be able to turn on the TV and see something that reminds me of the independent stations and Saturday morning cartoon blocks that I grew up with -- but I also recognize at this late date that it just can't happen. And any attempt to make it happen is going to be an unsuccessful effort in nostalgia that appeals to Boomers and Gen X'ers, not children.