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Sesame Street often has popular singers on their show, like when REM performed Furry Happy Monsters. Fairly recently, Katy Perry performed a version of Hot N Cold with Elmo, and parents complained that her dress was too revealing, despite their target audience being children that had just got weaned off of breast feeding.
More recently, I started thinking, “Sesame Street could’ve done worse, so HOW much worse?”. “Closer” by the Nine Inch Nails could be edited a littl… lot, to get on there, sure! :)
As for what Kenny and Death are looking at, I’m leaving it up to your imagination.