Separate to whether it is a good idea or not, I think it should be pointed out that Madam Tussaud's clothe their waxworks in real clothes, create real-hair wigs, etc. I doubt very much that a Madam Tussaud wax-work of Kermit, Fozzie or any of the others would be rendered in anything other than fur, fabric and fleece.
As for whether it is a good idea, well, I think some others have suggested a good approach, and that is to have a waxwork of Henson surrounded by his characters.