I've got to believe that the decision to release the episodes as single DVD's lies with the target audience. I'm sure that they want to keep these accessible for a younger audience. Not many parents are going to plop down the cash to buy their kids a boxed set, but they would be more willing to buy them one when they see singles offered in the store, or rent one from the video store.
Remember, to the majority of the world, this is a kiddie show. I'm sure that even Palisades themselves are confident that the a good portion of their toy sales will be going to children whose parents get that nostalgic feeling from when they watched the show 25 years ago.
Boxed sets for the X-Files or Trek or similar shows that are in easily accessible reruns on multiple channels are one thing. Only the diehards are going to buy those sets, since the product is essentially already available for free, all you need to do is tune in. I don't know about you guys, but I can't get an episode of the Muppet Show or Muppets Tonight on any channel my local cable or satellite providers carry. If I could, I'd be taping the dickens out of them, as my son would love it!
Ken, you yourself said that the Muppets are in the unenviable position of not having a current product to help promote the toy line. Boxing the vintage Muppet episode sets up at price points that many families could not afford wouldn't go far in helping that cause. There's a reason why you aren't releasing all fourteen waves of Muppet Show figures at once in one big boxed set, right?
Keeping the DVD's and VHS tapes as single volume units helps to keep the Muppets accessible for a wider audience, and in the end I think that's a good thing for the longevity of both the Muppet franchise and the Palisades Muppet Show toy line as well.
It may make it inconvenient for the diehards with cash to burn to pick up each volume, but hey, I think it's for the greater good, and I'm all for it.