I also love Terry Pratchett's wonderful creation, Gaspode, the talking dog in the Discworld series. Gaspode talks a lot of sense!! (Mind, as a border collie owner, I am going to be favourly impressed by things like this. Cat owners would probably be more impressed with Puss in Boots. It is clear who the boss is in that story and it isn't the miller's son!!).
So I think animals do have a wonderful role to play in fiction (there's Babe as well of course and I;m sure a host of other stories and books I haven't thought of as I type this). I don't like "twee" animal stories. (Watership Down shows how fully rounded animal characters should be shown - nothing twee about that story at all, far from it).
So animals as characters should be as well depicted as any other type of character. (And if you can get them showing up human stupidity or the fact humans aren't the only ones with intelligence, so much the better as far as I'm concerned).