A couple of nights ago, while watching Kevin Clash's Being Elmo, I saw a snippet on how muppets are made. It fascinated me that most of the muppets are made by hand and that some muppet-building techniques were developed by Jim Henson himself, such as the fabled Henson Stitch. A mental image of a group of bearded guys sitting in a circle and sewing muppets was a bit too funny for me, but who knows? Henson and company probably did that while trying out different voices and throwing around dialogues for Sesame Street segments.
In any case, I found a really helpful tutorial for doing the Henson Stitch: