No, all of you people who are laughing thinking that this story is fake, this is REAL. Here's the freaking source.
What kind of person actually thinks that using a real groundhog for Punxsutawney Phil is cruel? He's a groundhog. He's coming out of the ground. That's what they do. When he comes out of his hole, people don't pick him up and shake him violently, screaming in his face all the while.
But to answer my own question, PETA thinks that using a real groundhog to predict the weather is indeed cruel:
"Other popular exhibitions have featured robotic penguins and dolphins who swim and communicate just like real animals do and we think that an animatronic groundhog would similarly mesmerize a crowd full of curious spectators in Punxsutawney."
See, the point of this tradition is to see if the groundhog comes out of the hole to predict more Winter or an early Spring. A robot-groundhog will provide no anticipation because the result is known in the first place, not to mention the loss of tradition.
Also, how in God's name is this cruel to animals?! Robot-groundhogs; well I never.
Cross-linked at Jumping in Pools