Muppet isn't so much a derogatory term in English but more a term of irritated endearment. Say for instance you ask an associate to book a table for a business dinner and they manage to mess up the arrangements and you end up booked in for meal at the same time as a huge football team and there's so much noise that no-one can hear themselves think. Then you might turn to your associate and call them a muppet.
Now, given that the Muppets are fairly accident prone, apt to have situations go wrong or out of control, cannot exist without a human hand up their bum to control them, I would say that the term Muppet used in the way I did just now is actually okay.
If however, the term was used to refer to disabled people in wheelchairs or people suffering from things like cerebral palsy or downs syndrome then I would be upset.
Yes the OED has it wrong. Yes their information is flawed and innaccurate. But they are the world leaders when it comes to documenting languages. With a dictionary that spans twelve volumes and each volume is something like 1,000 pages long. It's only natural the newer entries need to be amended.
Also the Oxford University press is one of the oldest in the world and as such one of the most conservative and academic. They provide the most staid and bald definitions for most words.
It should also be noted that the modern English and slang dictionaries are not part of the main publication. They form more of an entryway into the larger pantheon of accepted language.
However if you want to talk about misappropriation of words then simply look at American English. There never was a more mangled and misused collection of words.
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