I'm not extremely well versed on my British slang, but I've spent a few years around people from that part of the world, and from what I can tell, the term "Muppet" can be used in both a teasing and a derogatory manner, much like several American slang words I won't mention

Got that, ya "git"?

Actually, since I will be headed that way in a few months maybe I need to study up http://www.peevish.co.uk/slang/ hehe