I hope nobody here is suggesting that making a replica muppet for your own personal enjoyment is somehow wrong or a bad thing. If somebody is suggesting that, then all fan art is wrong, bad, illegal. Some laws are just dumb laws, and if making a replica Kermit for myself is some highly illegal manuever, then come and arrest me. Making a Kermit for myself isn't hurting a single soul. Some may claim that JHC would be losing licensing money by me not buying a licensed Kermit, but you would be very sorely wrong, because I wouldn't buy a licensed Kermit in the first place if replica is what I was after. Fan art should be considered a compliment, not a crime. Arresting fans for things they create for their own personal enjoyment would look pretty bad in the public eye, illegal or not.
*defiantly steps off soapbox*