Dude, that's awesome! I kinda wish I'd known about these back when I was actually studying Japanese. My old teacher used to read us Japanese children's stories and folktales, like Momotaro. Anyway, it would probably be nice if they'd asked ZUN for permission, but didn't he basically give permission to use any of the characters for any purpose already, with barely any restrictions?
I'd like to see more of this kind of stuff, with other characters like Keine or Akyuu or Yukari telling stories, and with actual voice actors like they have for the other videos. And maybe subtitles...