How the ponies gave Dream Castle to the Grundles so they could "rebuild their kingdom".
Why couldn't the Flutter ponies just get rid of the smooze from the Grundles' original kingdom? That always annoyed the hell out of me when I was a kid.
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Late reply, but y'know, I always thought the same thing. Even if they couldn't save the Grundle Kingdom, they should've just handed over Paradise Estate instead. That was a total downgrade from Dream Castle. You have a great number of ponies living in the area(more and more with each new toy introduced). You need a place big enough for them all. The Castle was perfect(and nice looking, as seen some of the episodes of the cartoon series).
Paradise Estate... that's big enough for one handful of ponies, tops. All the Grundles could fit(thinking the majority of the Grundle people were dead, and King Grundle and the few seen in the movie were the lone survivors).