I've never seen KSY, but I just have to say.... Not directed towards anyone personally here, but I'm tired of the "Oh. It's just a kid's show." attitude. There can be really high quality and great morals in things marketed to kids. On the other hand, there can be garbage as well, but that doesn't mean there's not just as much garbage aimed at adults.
I think part of why the Muppets are so great is that they do work universally. Kids and adults can watch The Muppet Show and get something out of it. Of course there are projects that have a narrower target audience like Muppet Babies and KSY, but those projects are just a small portion of what the Muppets have done. One could argue that the Muppets are going in the wrong dirrection in making appearences on late night television making more adult jokes just as easily too. I guess what I'm saying is that the Muppets have a pretty deversified portfolio. They've done primetime, comedy, literature adaptations, big movies, cartoons, and countless TV appearences, but they aren't known for just one thing. Which helps counter weaker projects.
As for my opinion on Muppets working with "over the top" or "cartoony" actors. I think it can work if it's natural. For some reason, the "I'm Just Wild About Harry" number from the Jean Stapleton episode comes to mind. I think the one thing that's needed is a genuine connection and chemisrty. Otherwise, it's just awkward.