Always Obscured feels... wrong? Aside from the fact that there's plenty of muppets that have full costumes and plenty of times that muppets without full costumes are seen in full, that's an audience thing. The characters can seen all of a muppet character, the camera tricks are for the audience. At most, it should be pure flavor without mechanical effect, but I doubt that the anyone playing a game will remember to try to keep them obscured from the waist down.
Not sure what the deal with mage hand is, either. Is it for muppetborn without hands, maybe?
Kinda surprised that they didn't get any ability referencing that they can be scrunched and folded up without trouble. Something like resistance to bludgeoning damage and being able to fit through smaller holes and cracks than is normal for their size.
That said, I can't stop thinking of a paladin based off of Oscar the Grouch, whose garbage can has been modified so their arms and legs can come out.