If it makes you feel any better, you can just change the list title to "Animated Children's Movies." It's not very much better defined as a genre than "Animation," if you look at it hard (you can have children's action, children's mystery, children's comedy, etc), but that is a better defined genre and the list of winners doesn't need to change.
I think they manage to do that every time they release any of their "Top N" lists. Still, they do provide fodder for people to discuss, and I can't exactly get too huffy at them for excluding things I happen to like (
ahem 
).
So, here's a question for you all.
AFI made 10 top 10 lists of "genre" films. The genres they picked (minus animation) were:
Fantasy
Gangster
Science Fiction
Western
Sports
Mystery
Romantic Comedy
Courtroom Drama
Epic
Looking at those lists, I'm going to be honestly hard pressed to find a place to drop their picks of top 10 animated films without essentially dominating "Fantasy" or "Science Fiction." Even if I bend the rules outside the AMERICAN Film Institute's charter and start going international, I have to go to Japan to start finding animated sports movies and straight-up romantic comedy. Westerns and mysteries are radically under-represented in animation. I can't think of a gangster or courtroom drama animated movie at all (and that they put
To Kill a Mockingbird at #1 shows that they do have some taste).
For all our insistence that animation is a medium and not a genre, it is still a medium that is being used for an extremely narrow field of genres, even in the places that supposedly regard animation more highly as a filmmaking tool. I also think that the list of animated films that can really compete among the body of live-action work would be incredibly small, and attempting to do so would inadvertently marginalize animation even further. If nothing else, the law of averages is far weighted against animation in that kind of head-to-head comparison, since there are so many more people working in live-action and so many more live-action films made. Insisting on animation's first-class status as a medium and not a genre just stacks the deck against them very heavily.
I'm sure there's something to be learned from all this, although I'm not really positive what it is yet. It certainly does put the Best Animated Feature Oscar in a different light.
-- Ed