I saw it with my little cousins a few weeks ago, and I thought it was well-done. At least this adaption had more faith to the original story instead of the "How The Grinch Stole Christmas" and "The Cat in the Hat" live-action film interpretations (the live-action films, IMO, aren't so great).
I really liked it. And as for Katie: Was she you know, mentally a little gone? I said something along those lines, and my friend said she didn't think so. I just figured she'd been dropped on her head. Repeatedly. From a very long ways up. She was my favourite of the side characters, though.