I answered a post about this earlier. It's because phallic images on the cover.
"As the story goes, a disgruntled Disney employee found out that he was being fired upon completion of the project, so in one last act of rebellion, he drew the phallus into the cover art."
"Compelling story, sure, but it's pure fabrication. Here's the straight facts: The artist who drew the cover art was commissioned for the job and he was not an actual Disney employee. In his rush to complete the cover art, the artist hastily drew the background detail in the wee hours of the morning. It wasn't until someone called him for questioning that the artist even noticed the phallic image."
"Needless to say, in later editions of The Little Mermaid, such as on the laser disc cover, the offending spire was removed."
You can find this story and the pictures of the images being referred to at this site:
http://www.animatedbuzz.com/WB/39.html
Un de l'original Mertzie flacque de bouers!