To bring this back on topic: The recycling-bin rumor sounds even less credible than the other rumors I've heard about Sesame Street Muppets. It might have started when someone heard about the environmental theme this season, and expected the lessons to be as heavy-handed as the health lessons were 3-4 seasons ago. Some local joker in the media probably said "What'll those people do next, move Oscar the Grouch into a recycling bin?" ... and the audience overreacted, just as they did when the Veggie Monster rumors began.
I have a feeling someone at Sesame Workshop was trying to nip that rumor in the bud when Oscar starred in the "Mary, Mary, Quite Contrary" episode. By showing Oscar still living in a trash can and keeping his dirty, smelly preferences, the writers may have been saying: "OK, rumor-mongers, do we need to show you a picture?"
