I feel like the characters are completely disjointed from the rest of the picture, and the colors look dull and flat. The background is also taking too much attention / looks sloppy, but I've corrected and re-drawn this so many times I'm starting to feel lost. Critique and suggestions please!
Your work is pretty cute! But I agree with your self-critiques, overall the colours are flat. You should use some more variation in the values do bring in a sense of depth, like having the bushes in the background getting more desaturated, since they seem to be about the same intensity as the colours of the characters, and it makes the colours all kind of blend together. You've got the right idea with the sky becoming lighter as it moves down towards the horizon! Perhaps a few trees goung off into the distance (even less saturated) would really help with leading the viewer's attention more easily from the sky downwards, as right now it's like: big chunk of blue, then big chunks of green, with characters in the middle.
Having some foreground action would really help the sense of depth as well, maybe some tree branches or something similar? You should have a play around!
Like Primeillus said, it lacks values that creates depth in your image.
The outlines also contribute to the cut-out look.