We have no idea how this scene isn't as notorious as the death of Bambi's mother. Let's all remind ourselves how the story of Pinocchio initially appears to end. The film's main character is drowned trying to save his friends, and it happens right in front of our eyes.
The happy ending that follows takes some of the impact away, but just for a moment, you're left to believe you've just seen the bleakest Disney movie of all time. Amazingly, this was originally supposed to be how the film finished!