Yes, that was a film called "Meet the Feebles."
Oddly, I had a nightmare when I was 3 that involved all the Sesame Street characters being killed after being possessed by a skeleton.Bert ended up saving them all though.
More Epic than Epic"Meet the Feebles" http://www.imdb.com/title/tt0097858/Peter Jackson's greatest work
this person hasn't seen "meet the feebles". minus zombies, that's pretty much the storyline.
I think there was an episode of The Muppet Show with this plot...
Ask and you shall receive.http://www.facebook.com/misfitheights