The Adventures of Elmo in Grouchland (1999) on Netflix

Elmo the fuzzy little red monster wakes up one morning to stick together with his favorite fuzzy blue blanket. Elmo learns a lesson when he refuses to share his blanket with his best friend, Zoe, then loses it in Oscar's can, where it goes all the way to Grouchland. And now for the first time ever Elmo musters all of his determination and courage and heads off on an action-packed rescue mission that plunges him into Grouchland-a place full of grouchy creatures, stinky garbage and the villainous man alive named Huxley. He asked a kind girl named Grizzy to help Elmo get back his blanket. Grizzy decided she wanted to stop helping because Huxley's house is on the top of Mount Pickanose which is far, far away. Elmo is now on his own. All the people from Sesame Street come to Grouchland to get Elmo back.