The muppet babies did exist! They just weren't all together at the same time.
I think the best way to solve this is with another muppet movie. Something that can bring all the muppets together, including sesame street and MT muppets. Something that is said to be the real story retold. Personally I think this is what REALLY happened.
Baby Kermit is born in the swamp and stays there until someone captures him and brings him to a tv studio. He then becomes part of the show Sam and Friends. He is too shy to talk, so he lip syncs. Rowlf starts out on a talk show, I forgot which one. Then one day Kermit gets over his shyness and starts up a small company. They make low budget movies based on fair tales such as the frog prince and Cinderella.
Now whle this is happening Scooter and his sister Skeeter live with Scooter's Uncle. Skeeter goes off to explore the amazon but Scooter decideds he wants to get into the music scene. He meets up with Dr. Teeth while on a coffee run. Dr. Teeth tells Scooter about his band and Scooter runs to his Unlce and asks for his own building. His uncle buys Scooter the church and Dr. Teeth and the EM and Scooter move in. Scooter finds an old bus in a junk yard and the band paints it while singing.
Now, Kermit decides he wants to get into television again. So, he and his friend Rowlf, who met at the Brown Durby in hollywood, decide the time has come to capture the minds of children with their own children's show. Sesame street is created. Rowlf plays and composes the music but is not seen. Kermit, wanting to inplant his image in the minds of children, decides to show up every now and then. All the muppets were found on a secret muppet island where felt and foam has come into contact with nuclear waste and have mutated with all kinds of DNA from animals, plants, and aliens.
Now, Kermit has stared sesame street for a while and he knows all those children he entertained were now adults. So, he decides to start the Muppet Show. He hires a muppet hunter to capture the entire muppet show cast from Muppet Island! But, Kermit is missing a theater and a band. Where does he go?
So, Fozzie and Kermit decide to drive day and night until they find themselves a band with a road manager who has a rich uncle. Before they find the band, however, Kermit and Fozzie run into Doc Hopper and we all know how that goes. Then, Kermit and Fozzie find the old church and invite the band to be on Kermit's show. Scooter sees a great opportunity and asks if Kermit has a place for his show. Scooter thinks Kermit will say yes and that he will have to start talking Kermit into renting the church, instead Kermit says no and this starts Scooter thinking.
Scooter calls up his uncle and asks for a theater. His uncle says that he can have a theater if he gives up the church. Scooter looks around and tells the band to pack it up. Now Scooter and Kermit go into business. All Kermit has to do is let Scooter do whatever he wants.
The muppet show is a hit and the muppets start making movies. The first one being the Muppet Movie. Of course Kermit can't let out the secret of Muppet Island (BTW, muppet actual is short for mutated puppet
). So, he makes up this whole stroy about traveling west and meeting all his friends. The only true part is the way he met the band, but it's so weird people think it's just part of the movie.
Every movie is total fiction after that except for the stuff that looks like it's unscripted. i.e. Kermit and Piggy fighting in GMC. Nothing on the muppet show is canon, nothing in TMM or TMTM or MCC or MTI or MFS or anything else is canon! Not even the parts of TMM where Kermit gives people the script is canon.
Now thats a weird story my friends!