I saw it, and I say it offended me... not because the Muppets were killed at the end, but because the parody made SS look like a rinkydink cable access crappy kids show from the 90's. But I'll gived it a C+, anyway. The actor playing Gordon was the only one who did any research.
But this was pretty funny, I guess... But I have heard/ Seen the "Big Bird gets the Bird flu" joke one too many times... in a local paper (the Weekly Dig, which mentioned Benny Rabbit in the article, kudos to them) and again as a political cartoon strip.
And I've seen too many Sesame/ Muppet Parodies in which someone gets killed. It's not offensive as a Muppet fan, but as a comedic writer. I saw one on Stankervision (some weird MTV2 sketch comedy show) which was sorta funny, and it was original in the aspect the skit was Claymation. I'll explain it another time, somewhere.
Of course, I did like the Statler/ Waldorf bit at the end.
I only watched MADTV, because the first episode of South Park on syndication (no Cable) was one I had on a tape I bought.