No one can argue that LARRY BIRKHEAD's daughter DANNIELYNN leads a dull life. The daughter and sole heir of the late ANNA NICOLE SMITH has traveled to such locales as the Bahamas and Kentucky, swum with dolphins, had BARNEY perform at her first birthday, and even lent her name to a Habitat For Humanity house (Dannielynn House: In Memory of Anna Nicole and DANIEL WAYNE SMITH).

On Thursday night, little Dannielynn, who will be two in September, had perhaps the greatest moment of her young life yet -- she met ELMO and THE COUNT!

The magic happened just before a live performance in L.A. of Sesame Street Live "Elmo Makes Music," in which Elmo, The Count and other beloved "Sesame Street" characters such as BIG BIRD, GROVER, COOKIE MONSTER, BERT & ERNIE discover the joy of musical instruments -- including makeshift rubber duckies, trash can lids and even cookie jars!

The show features nearly two dozen songs, including "The Hustle," "Rockin' Robin" and "You Should Be Dancing."

Watch ET for more highlights of this precious event!