I can circle that square with a few pieces of canon. We start out with Kermit on SNL:
The muppets are a form of life, perhaps not quite like our own, but one with its own orders and genuses and the like. Robin goes from tadpole to frog stage on Muppet Babies, after all, that’s a biological life process. Note that muppets keep sewing/stitching/hand jokes to a minimum, that’s because they aren’t puppets, they just resemble them.
The hand-thing presumes muppets work like toons from Roger Rabbit or toys from Toy Story, where they’re made by people an incarnated. I propose they are like Pokemon, a separate, parallel classification of life that exists alongside what we would call natural life. As with Pokemon, these lifeforms are not the result of a parallel evolution. Rather, their various kinds were created by some manner of God. We know these exist in the Muppet canon, as Big Bird argued the Egyptian Pantheon into letting a child ghost into the afterlife that one time.
Personally, as the essence of being a muppet is your greatest motivation being your greatest weakness, I blame the demiurge.
But you can blame Gonzo’s people or the aholes that are made of a Skexis and a Mystic, but not the Goblin King (he is a rogue memetic construct, what some might wrongly label a ‘tulpa’). It’s also possible they crossed over from the Gorg world. (but that does not preclude them from also being the creations of the demiurge)
This is not to say that muppets are inherently magic, any more than say, a hobbit or a goblin is “magic” in Lord of the Rings. They are simply created beings that thereafter reproduce after their own kind. Emmit Otter and his Ma, the fact that “Monster” and “grouch” are explicitly races in Sesame Street, etc.
Now, I hear you saying, “but [email protected], you handsome madman, we just pointed out that Fozzie and Kermit have a green half-bear/half-frog father!”
Because the Muppets are actors.
Muppets (the order of life) and the Muppets (the comedy/acting troupe), are different things. The former contains the latter but the latter does not contain all of the former. In essence, Kermit named his endeavor “The People’s Theater”.
Breaks down like this: You have our, real world universe. Within that is nested a universe that is much like ours, except it is sillier, and Muppets are creatures and not special effects. Within that are nested the fictional worlds of all the various muppet productions.
For further proof, I present these bloopers from Emmet Otter’s Jugband Christmas:
It is uncertain how much of the Muppet ouvre is canonical ‘behind the scenes’ and how much is constructed entertainment provided by the Muppet organization, because of one deep wrinkle we haven’t touched on...
Kermit is hard-core about Kayfabe. He comes from a Vaudeville theater background, the 4th wall does not exist in his performance ethos, the show must go on, and the rubes getting a peek behind the curtain doesn’t get you off that hook.
All your Muppet-troupe core performers stick close to this ethos, ensuring you can never be quite certain on what level of reality the scene you’re being presented with is intended to be.Any specific example that conflicts with the others cannot be shown not to just be another straight-faced performance.
It’s not an unreliable narrator, everyone is unreliable, from the producer on down to the go-fer.
Don’t blame me, blame the Demiurge.
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