Well, that depends. You can't just make an Ernie for example and change a few features and call it original. What's prohibited by copyright law is what are called "Derivative Works". What you are legally allowed to do with a copyrighted work (like a Muppet) is called "Fair Use."
The line between what's fair use and what's a derivative work is very blurry sometimes; even experienced intellectual property lawyers have trouble determining the limits of fair use.
The basic rule of thumb should be that if you're selling puppets, create your own original ones. If you want to make Muppets, keep them on your shelf at home.
BTW, there's an old, extensive thread about copyright and fair use in the General Discussion forum -
http://forum.muppetcentral.com/showthread.php?t=11588