Question: Why were the elves happy to see Scott and Charlie on their return to the North Pole? Their presence obviously meant that the old Santa was dead.
Answer: As the various Santas periodically are killed or die by other means, the elves appear unsurprised and are happy and relieved that they don't have to worry about having a replacement. They also seem pleased to see young Charlie, who wasn't expected. I haven't seen the movie in years, but I seem to recall that the previous Santa wasn't particularly liked or was somewhat incompetent.
Maybe they could "sense", so to speak, that Scott would be the new Santa and that the old Santa had died and had some time to adjust to it. Maybe they weren't smiling at the fact of the old Santa dying, just that they had a Santa at all. Also, while nobody was expecting Charlie, he's still a kid, a.k.a. the heart and soul of Christmas. Why wouldn't they be happy to see that?
Question: When Scott starts slowly turning into Santa, everybody believes he's dressing up as Santa on purpose. Why didn't Scott simply tell people, "I don't think I'm Santa Claus. I'm not pretending to be Santa Claus. I know I'm not Santa Claus. I'm not even trying to look like him." Granted he could never tell anybody how it happened but if he simply said that he isn't pretending to be somebody he's not people might ease up a bit?
Answer: If he told people he was not deliberately trying to look like Santa Claus, that would cause them to be even more suspicious of Scott Calvin having a mental disorder, not a physical one. Remember, Scott went to see his family doctor, Pete, and Pete tried to explain to Scott his physical changes as a matter of changing his diet from milk and cookies, and Scott suffering from a hormone imbalance. Scott tried, but not even Doctor Pete, a professional in the medical field, could help him.
This question is about his mental state. Not his physical transformation. In other words, he could say "There's nothing mentally wrong with me that would make me think for one second I am Santa." His physical transformation could be explained by people thinking he's overeating, growing facial hair and his hair turning white.
Except, Doctor Pete was incompetent. Nobody has the drastic physiological changes that Scott had, and Dr. Pete seems committed to blaming them on 'routine' aging and diet factors. In real life, a competent doctor would be submitting Scott to a continuous battery of tests, cancer screenings, CT scans, etc.
Answer: Unbeknownst to Scott, Charlie, and the viewer, Scott became the new Santa the moment he put on the Santa suit on his roof. Because of this, the elves don't even see him as Scott, but as Santa. His arrival also meant another successful toy delivery and the continuation of Christmas itself.
Invader_Gir
It should be noted Tim Allen thought this was odd too and had this exact thing corrected in the series The Santa Clauses, where it was confirmed the old Santa decided to retire and basically fell off the roof on purpose. The Elves already knew the one Santa was leaving and a new one would be coming, which is why they were excited and never brought up the old Santa.