Although I used OS 7 years ago, I never had Oscar Trash. I guess because I didn't have little kids then. I did a quick Google search & found the info below. It was not Apple that stopped it. I found a graphic, but not the trash one.
"For some people, though, Apple made deleting files entirely too easy. There was a trash can modification available that featured Sesame Street's Oscar the Grouch in a trash can. If you dropped in a file, Oscar would pop out and sing a line or two of his hit song, "I Love Trash." It was really cute.
Actually, it was entirely too cute. Speaking from personal experience, you should never mix file deletions, singing characters and an unsupervised three-year-old (who knows how to turn on the computer by himself) — unless you are prepared to find every file on your hard drive in the trash can awaiting deletion."
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"In the olden days...there was a similar program. Every time you put something in the trash, Oscar the Grouch popped out and sang "I love trash." There were only two problems: Kids liked seeing the animation so much that they were basically throwing away their parents' whole hard drive! And Sesame St. of course didn't like it that they were stealing Oscar and made them stop."
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"This was probably done in collusion with Children's Television Workshop (CTW) so that they can prevent someone from making an OS X version of "The Grouch", one of the greatest MacOS hacks ever.
It was great. Empty the trash, and Oscar the Grouch would come out of the trashcan singing. Then CTW sued the the muppety pants off the author and it pretty much disappeared."
