It's hand-drawn by Bulgarians (well known as an animation outsourcing country, and it shows in Lil' Bush), and composited in Flash. Or something. The commentary tracks on the DVD are boring as hell, too.
And I need to remind people that political discussion is NOT permitted on the forums. To an extent, a show like Lil' Bush is problematic because it is political humor (or at least, it tries to be on both accounts), but this is NOT the place for a discussion about how much you love or hate the Bush administration. I tried to minimize my feelings about Bush 2 in my review, but felt I needed to bring it up because I'm exactly the sort of person who should be laughing my head off at it and I'm not.
-- Ed