^Well, The Lion King remake does suffer from that same uncanny valley. Almost everyone I've seen on the internet has expressed their complaints about how emotionless they look. And it's true, since animals don't convey emotions the same way that humans do. They mainly use body language rather than facial expression to convey that emotion. A normal human audience can't sympathize or relate with the characters if they have no idea what they're feeling at all. That is why most, if not all movies with animals as the main cast would not work under "live action". So naturally, I'd agree with your stance that if Universal remakes The Land Before Time, it should be animated. Disney can boast their photorealism as much as they want, but the end product of those remakes would leave many people bitterly disappointed.
According to Google, this is their definition of live action.
live ac·tion
/ˌlīv ˈakSH(ə)n/
noun
noun: live action
(in filmmaking) action involving real people or animals, as contrasted with animation or computer-generated effects.
"a live-action version of the cartoon"
But yet with Disney, the only thing that is actually real in their live action movies is the people themselves and the ground. Eh, the movies wouldn't be as successfully if they advertised it as a "photorealistic real life movie remake" instead of "live action."
So, every decision that Disney has made so far are actually good ones in the perspective of business. They're preying on everyone's nostalgia, and therefore sucking their wallets dry and earning them big bank. Disney is doing everything right to earn as much money as possible, at least in the short term. They're reusing and taking ideas from the old movies that are already made, and therefore the output is a lot of money for very little risk. It seems like they can't afford to do something a bit more original and have that movie possibly bomb in the box office. Yet again, that makes total sense in a business viewpoint. I wonder how many live action remakes they can go through before the public craze finally starts to die down. I don't know honestly.