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The severed head Mudokon Pop was retconned by Abe's Exoddus, as seen during Abe's entry into FeeCo. It was never meant to be a severed head, as it clashes horribly with the other tasty treats product labels.
[See Vlam's post above.]
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The reason the head on a stick was retconned was because of an incident in Japan close to AO's release there. Some kid at a school decapitated a fellow student and put his head on a stick/fence. Originally the design was only changed in the Japanese version of AO, but later it was applied to all versions of all Oddworld games.
http://oddworld.wikia.com/wiki/Mudok...#Design_change
I think the original head on a stick design was meant to shock the player, and drive home the connection between Abe's appearance and the graphic. That effect is basically absent from the newer design.