Here's the scoop on how OSCAR turned from orange to green and how they explained it on the show:
OSCAR was orange in the first season, 1969-1970.
Carroll Spinney was gonna perform OSCAR as a guest on the old Flip Wilson Show in 1970, but by that time, it was agreed that the puppet would be re-designed, but with the original eyebrows intact, with a new green color, because the old orange one wasn't working.
So, Don Sahlin and Kermit Love, the Muppet builders of the time, gave him a new look for the grouch's first green appearance ever in public, the Flip Wilson Show.
Spinney said that the producers at SESAME were pretty irked that they weren't notified of this drastic change, but by that time, the original orange Oscar had been destroyed and taken apart to make the new green one, so they just lived with it.
His first green appearance on SESAME STREET, however, was popping out of the can on the 1970 Season Premiere, as Big Bird sang: "Everyone Makes Mistakes." They later explained on a different show that he had turned green because he spent a week at some grouch camp and the something caused his fur to change colors.
This is all paraphrased from Mr. Spinney's autobiography.