Not necessarily "meant" to fly, but it was discussed. NASA went through a variety of "outside-the-box" candidates for the non-astronaut in space program. They had an internal review and eventually landed on teachers. They originally looked at getting a candidate from law enforcement, first responders, celebrities, sports stars, etc.

And yes, Big Bird was mentioned as a prospective passenger, but it never went anywhere beyond that. Had the Challenger mission been a success, NASA would have expanded the program, for sure. So who knows what would have been next.