They want to make sick kids happier and it appears to work. How is it lacking humanity to make sick kids happier?

Of course they do!

Stuff like this does not replace human interaction, in both meanings.

1) No one "stops" visiting ill children because this robot exist, right? I know someone who is a "clinic clown", who keeps children a little bit happier by clowning around with a red round nose and funny make-up. Stuff like this will not "stop" because there is now a "better alternative".

2) This is in the same way a "solution" like a improvised splint is a solution to a broken leg. Not perfect in any way, not something forever, but it's better than nothing.

And "nothing" is the alternative for many people.

I worked in an elderly home after high school. Many of those people never had any visitors in a whole year, and the facility was severly understaffed, preventing us from "replacing" their families a bit. While I'm hoping that most childs in hospital get more visitors, I'm sure many are very lonely too.

I too would wish for it to be different. But we can't force people to interact with other people, can we?

If robots can emulate human emotions and affection close enough to at least ease the pain for those people, it's better than nothing, no? :-)

On the contrary I think people working on things like this might have a good amount of humanity. It's the pressures to cut humans out for labor costs that is without humanity. Even non-profit hospitals often have administrations that are incentivized to cut costs, which meant that even before the pandemic hospitals were cutting their workforce to the bone. There are currently very few, if any, laws that mandate safe healthcare-worker-to-patient ratios, which means hospital administration can arbitrarily decide how many ways a given medical personnel is expected to split their attention among the sick.

Make no mistake that if we are to blame anyone with this technology we should be blaming medical administration.