It can be done well, keeping its folksy charm and with artists and instrumentalists who understand the tone.
Whoever produced the "O Mickey Where Art Thou" soundtrack for Disney, for example, got it right. That was not just a cheesy children's album. It was actually very, very well-done album with some of the best (not the most popular) country and bluegrass artists doing the songs. If they involve the producers of that album, I would have confidence that they can pull off and good update that was still timeless.
Either way, they should involve folks who know their country and bluegrass music history, and have a love for it -- and yet also understand showmanship overall. And there ARE some folks in Nashville who do get it. T-Bone Burnett ("O Brother" producer) and Eddie Stubbs (WSM announcer) and Kyle Cantrell (former Opry announcer and Sirius Satelllite Radio host and historian) are further examples.