The difference between godzilla on one hand and the muppets is that godzilla is a puppet but everyone pretends is actually a giant monster. Muppets exist simultaneously to humanity but everyone seems to think its just a natural societal situation.
So then take different movies like Muppet treasure island and Who Framed Roger Rabbit. The former is so unbelievable that they dont have any explanation for the differences in characters or the laws that guide them. In contrast, Roger rabbit and the other cartoons are cartoons and have physical laws guided by the cartoons of old. They also can be killed by slime or by laughing to death. It is unclear what kills muppets as they can be blown up and burnt, but somehow get scared with guns. Muppets are so fantastical that they even make jokes in the movies about the script writers of the film they are in.
When muppets are done right, they call them puppets and they are in movies like Dark Crystal and shows like Farscape. They go by the same laws as other creatures or they define specific laws for them.
I know this seems like nitpicking.... because it is.