Well, under the Hayes Office, which had power in 1959, movies exhibited in the U.S. were required to conform to standards slightly looser than "G", but more stringent than "PG", so no films were supposed to be particularly unsuitable for children. For men to dress up as women to disguise themselves was thus apparently considered less objectionable than for a man and woman to have a single kiss last more than 3 seconds (unless the man was a soldier or sailor departing for The War--some of those film kisses were allowed to last a lot longer).
BTW, note that cross-dressing for theatrical or humorous purposes goes back a long time, and was not considered to have anything to do with sexual deviancy.
That's nice. Only, we are talking about a familiar fictional character dressed in WOMEN'S THONG UNDERWEAR. We are also talking about a male dressed as a women who drools all over another man. This for the preschool and grade school crowd. I think it's inappropriate. Oh yeah...and some of the female characters were wanting to see Shrek naked and commented on his tight butt. Relate that back to the good old days.