Because its an exploitation of pop culture icons. Ones that have nothing to do with fighting or aggression of any kind.
If it had just been a poll, such as "Which do you like more, Sesame Street or The Muppet Show?", then that'd be okay. But to associate Muppet characters with wrestling is just plain out exploitation of those characters. It's the same as "Who would win, Ghandi or Martin Luther King, Jr.?" Both, being non-aggressive pacifists, would have nothing to do with fighting, and thus (in that scenario) they would have been used, due to their icon status.
I can see when they do something like that with characters such as the one Crazy Ernie posted, which was Super Mario vs. Sonic the Hedgehog. Those characters are ones that would fight. But the Muppets, who have always taught peace, love, and nonviolence, have no business being put up in this manner. (at least nonviolence in the real world...As Jim himself said on "Of Muppets and Men," people should be able to distinguish fake violence from that which is real).
And I mean, The Muppet Show vs. Sesame Street?! Come on! If you were going to use puppets, be a bit more creative, and furthermore, logical. The Muppet Show would never be pitted against Sesame Street. Possibly I could see The Muppet Show versus something like Land of the Lost or H.R. Puffnstuf, being they are different troupes. But no, TMS vs. SS.
That, is why it is pathetic. Fanatics don't often see "good fun" the same way others do when the object of their fanaticism is being poked. Sorry if I was a bit harsh.
-Matt