On our first trip with our kids, my older son was just shy of 3. He was so excited by the idea of seeing his favorite characters. Well, at least he was until he got there. Then he shrunk in terror any time a character was in sight. His cowering would turn to tears and screaming if they got too close.
So, we did our best to run interference and keep any characters out of sight. This was of course made difficult by our daughter who was 4 and who would go nuts (in a good way) anytime she saw a character - running over with her autograph book.
So, we were in MGM standing in front of the Sorceror's hat, talking with my family (my parents and sister and her family along with with my wife and kids) about what our next stop would be. DS was in a stroller, just hanging out. We didn't spot the characters coming up behind us. King Louie walked up to our son from behind and tapped him on the shoulder. None of us noticed until just as he reached for him. I actually shouted "No!" (which is pretty funny in and of itself - yelling at a big orangatang). Well, my son turns around to see who is trying to get his attention and when he sees this giant orange furball he proceeds to emit the most piercing, blood curdling scream of terror I have ever heard. King Louie beats a hasty retreat, but not before putting my son into a complete state of panic. People were actually running over to make sure he was OK. You would have thought that King Louie swung down and attacked him from the way he was carrying on. It took about 5 minutes to calm him down and he was extremely wary the rest of the day. We offered to take him back to the hotel and pool, but he wouldn't have it - he wanted to stay.
We've done a couple more trips since then, and it wasn't until this spring (at the age of 5) when he finally was ok with interacting with the costumed characters - and that was only because his fearless little 2.5 year old brother was shaming him into doing it.