As much as I love Space Jam because of its quirkiness, I still can't get by how we're supposed to view the Looney Tunes' location as the center of the Earth as a canon location. I love the idea of them co-exisitng as a cartoon staff and crew, but it'd make more sense in a different dimension, and yet, I still enjoy the film as it's part of my childhood. The solution? Brush it off as a dream or hallucination someone has, and say the real Looney Tunes vs. Moron Mountain story did not involve MJ's help and the Tunes were able to keep themselves from becoming slaves without a basketball game, and the Nerdlucks, tired of Swackhammer's abuse, stayed with them. If the Tunes play sports, it'd be namely for fun.
A New Legacy's events would also take place as a dream or hallucination, because in spite of how I accept the idea of the Tunes existing in a Tron-type universe, I didn't like how the sequel's events played out.