Yes, is a bit strange in many ways. For example the very first sounds in the song, which sounded like monkey cries to me and I used to think that they were made by people or synthesizers, are actual drums and have that very peculiar sound.
By the way, I heard the soundtrack from The Muppets before I watched the movie, and Man or Muppet was one of my least favorites, However it's a different experience to hear it alongside the visuals. That's probably why it was chosen.
I think that Life'a a Happy Song was more deserving. But I think that maybe because Disney's has had so many nominations before, truly mastering the art of getting songs nominated, that, perhaps the academy decided against Disney's dominance this year.