Had a browse through the forum but couldn't find this film... I don't really remember much, but there were these strange, weird creatures that were living under a palace. They were like sewers, and then one day a damn broke and the water flooded the palace and the creatures started to attack everyone in the palace. It had a happy ending and there was a song, which I remember I always loved!

Any ideas?

Sounds a bit like

The Princess and the Goblin (http://www.toonhound.com/goblin.htm)(93)

Young princess Irene and a humble miner's son join forces
To protect the kingdom from a goblin invasion. Princess Irene
Discovers a hidden room and finds her magical grandmother who
Offers Irene some guidance and a warning.