Yeah I knew of this. From a business standpoint I can understand the redesign, perhaps they tried to cater more to Sonic fans and the like, but... lol. Klonoa was always the kind of game that's so cutesy, it would give Charles Manson diabetes, not something edgy and hip like Sonic. It's kind of hard to sell in the west, where people raise an eyebrow even if they see you playing Sonic. Nothing short of a total reboot would really achieve what they seemingly aimed for with the redesign.
Here's for hoping that doesn't happen, God forbid.
As the commenters there said though, putting it in as a totally new character, not as part of some redesign/reboot... yeah, it would fit. Maybe as a rival?