I recently read an article posted on Yahoo about the fact that our movies and popular culture were "graying" the line between what is bad and good. More specifically, who is the bad guy and who is just a good hearted character that's made some bad decisions leading up to the story at hand. Think Despicable Me. (Spoiler Alert!) The bad guy at the beginning takes in three orphans to use for his evil deeds, only to decide that he must go legit for the sake of his new family. (Is there a need for a Godfather reference here?) Same with the Grinch. His heart grew magically with his understanding of the Spirit of Christmas. I myself, will forgive him. He just needs some kind-hearted guidance... and a hug. That attitude aligns with the Spirit of Christmas and with my interpretation of what Mr. Geisel had in mind.
So, can kids tell the difference between who is the bad guy and who is not? I think it is all in the spirit of the issue at hand. My son, Joshua is about as evil as they come in the eyes of his sister when he throws her stuffed (previously I had left out the word "stuffed" -that would be evil) cat across the room. But Alea writes a note about how much she loves him half an hour later. We encourage and foster this emotional flip-flop noting that just because a person does some bad things doesn't make them a bad person. Perhaps we should focus more on the consequences of those individual actions. That's where the stories and movies should take the criticism. What was the consequence the Grinch had to endure for breaking and entering, larceny, theft, public endangerment, and an attack on a community's religious beliefs? He was made a hero and got to carve the roast beast. Same thing in Despicable Me, and A Christmas Carol for that matter.
... and then of course, there's the fact that these are both just stories created for the entertainment of children. Over- analysis not needed.
I still think that The Grinch who Stole Christmas is one of the greatest Christmas stories of all time. A Christmas Story (Ralphie) is the best, hands down.