Pinocchio has successfully rescued Geppetto from inside the whale, but has seemingly died in the attempt. Since Pinocchio is physically whole, how can he be dead when he is able to breathe underwater? The film speeds past this, hoping the audience won't notice.
As in Snow White, the main character appears to be dead and the supporting characters cry over the body. I wonder if the story crew considered how similar the endings of the two films are? Later animated features made during Disney's lifetime would avoid the appearance of good guys dying at the climax except for Lady and the Tramp and The Jungle Book, and in those cases Trusty and Baloo were supporting characters, not the stars of the picture.
The Blue Fairy recedes as the picture progresses. We see her twice early in the film, but she disappears after freeing Pinocchio from Stromboli's birdcage. Her dove delivers the message about Geppetto and Monstro and her voice alone revives Pinocchio. Was this decision based on story concerns? Once Pinocchio starts taking positive action, would her presence detract from the danger and undercut Pinocchio's accomplishments? Perhaps it was simply done for economic reasons; losing a realistic character is a good way to save money.
When Pinocchio awakes, Geppetto once again deflates the potential sentimentality with humorous behavior in a Chaplinesque fashion. Inside Monstro, Geppetto kisses a tuna instead of Pinocchio. Here, he insists that Pinocchio is dead and must lie down before realizing the truth.
Pinocchio's transformation puts some distance between us and the character. Like the end of Disney's Beauty and the Beast, we've spent the whole film identifying with someone who is visually odd by the standards of his world but is accepted by us. Once the character becomes "normal" at the end, he's no longer someone we recognize. The character gains, but the audiences loses. Luckily, both films end very soon after the transformation occurs. Pinocchio, as a boy, appears in only 8 shots and the end of the film is given over to Jiminy and the wishing star, taking the film full circle.