Well, it certainly makes sense from a business perspective. Final Fantasy has the mainstream, "ooh, ahh" appeal with their pretty graphics and engaging storyline. Dragon Quest has the hardcore "I must find every one of 2,000 TinyMedals on this world in 2 time periods" crowd, with basic gameplay and an excellent story. So they need to round out their genres with an action RPG, and Kingdom Hearts is a decent game for what it was.
As for where to take the franchise, why not do Loony Tunes characters? Or a game based on Roger Rabbit (yes, there's already been one on the NES, but that doesn't count). Or a straight-out sequel (similar to FFX-2) for more of the same, but with better graphics/controls/camera/gameplay/etc?
Making Kingdom Hearts a staple is a good business decision, at the very least.