I know that the characters in Rayman Origins are inhabitants of a kind of dreamland but why do they swell up like balloons before they explode? Is there a precedent for this or is merely a stylistic thing? I don't recall this happening in the original Rayman.
From a plot point of view, the world is affected by the dreams / nightmares of the Bubble Dreamer (the guy with the beard below), so I guess he dreams about bubbles a lot.
In terms of gameplay, this blog entry on the Rayman website describes the thinking behind bubbles:
A health bar didn’t feel right in a game where you might lose all those hard earned “health points” by falling into a pit. So it was natural to limit those, and a great opportunity to get rid of the GUI. Instead we took the bubblizing approach. If you take a hit or fall into a pit you turn into a bubble. You can be revived by one of your co-op partners with a simple punch or jump.
in co-op mode. If your friend is running ahead, you are left with fewer opportunities to kick ass. So Michel came up with the idea to bubblize enemies. It was great, because all of a sudden lagging players could finish those bad guys, and earn one of those happy lums too.