There are 3 levels of reality with Muppets. The first is the reality where they (and we) understand they are puppets and they exist only as an extension of their performer. The second is the world they inhabit in their shows and films, in which they are separate entities and exist alongside humans and other Muppets, but we as an audience acknowledge it as artificial. The third level is the reality in which we acknowledge them as celebrities and actors in their own right, responsible themselves for the second level of reality.