Not sure I'd agree the Krankies had seedy undertones, as you're implying. They were still on TV when I was a kid, and I never realised Jimmy was a woman. And are you sure she had absolutely no say in it? I'd say they were just a harmless pantomime style act. But having said all that, I'd have to agree with the basic question: "The Krankies -- why??!"
I too was a child when they were on, but find it hard to believe that anyone didnt know she was a sinister dwarf. Dont think the overtones hit me though.
As to why....obvious. Its a new version of the Plagues of Egypt. Boils, flies, frogs, blood, The Krankies....