As far as the wrinkling goes, I should note that this was only noticeable in the extreme close up of Bert. Even in the regular close up it was not noticeable, but in the XCU you could see the slight gathering/wrinkling of the fabric under the lower thread. Come to think of it, I think his eyebrows were going up when I noticed this (it didn't last long) which would mean there's not only some sort of pulley inside the head but a spring or elastic creating tension on the whole loop of thread, or the thread is tight between two pulleys.
Actually the TV had a pretty bad picture, the contrast was set way too high, but I think this made the wrinkles stand out more than they would have on a decent set.