1. First, here's my opinion:
For the last 10 years I think, there has been a phenomenom with cartoons, almost all of them are "physically ugly" (I'm not meaning they are bad drawn). I f you want examples, there are "The Simpsons", "Cow and Chicken", "Hey Arnold" , "Real Mosnters", etc, etc. These cartoons are very good ones, but the drawings are not what we are accustomed to. Why is this happening with cartoons? Is that an answer to Disney's "pretty and always-the-same cartoons"?, I don't know.
In the Rugrats case, the drawings are also not pretty. For example, the first time I saw a Rugrats episode, I thought that Tommy was an E.T.'s relative. (you know, they are small, with a peculiar head shape and a strange way of walking). And even Chuckie seemed for me like the evil doll with the same name.
The characters are humans, there's no doubt, even they have 5 fingers on each hand. I think they look like that, first to make them different, and then, to make more clear the fact that the show is a CARTOON and it is not copying exactly the way of life of us, the real people (only making a fun parody of it).
The animation style has changed a lot, on the last episodes, the characters look a little bit prettier than before.
But well, for me the animation style is not important, it is the plot what is THE important part of the show. I don´t know you but for me, the Rugrats are really cute, not because of their looks, but because of what is inside of them.

2. Rick Thum II says:

When it comes to animation style I'm inclined to agree with you, in that it is what's inside that matters. However, I actually preferred the earlierdrawings of the Rugrats. In fact season number one is my favorite. You knowthe interesting thing is I don't know why I like it better (which is unusualfor me, I seem to think I know everything). There's just something about thecharacters that makes them seem so much more innocent and cute and... and...well, baby-like. This just can't be duplicated with higher quality animation.I must say though, that the Rugrats charm goes well beyond their animation.The first episode I ever saw was the one with Grandpa Lou's matress, where theRugrats think its got a monster inside. I have been hooked ever since.