I was thinking of having the Swedish Chef as Sauron; and the Ring would be baked in the Oven of Doom. Let's see, now how should the rest of the characters be cast?
Frodo: Robin (Kermit's nephew)
Aragorn: Kermit
Arwen: Miss Piggy
Elrond: Scooter
Merry: Rizzo
Pippin: Gonzo
Sam: Rowlf
Gollum: Animal (makes sense to me)
Saruman: Stadler (one of the "two old guys")
Grima Wormtongue: Waldorf (the other of "the two old guys")
Gimli: Doctor Bunsen Honeydew
Legolas: Beaker (Legolas/Beaker: "Mi, Mi! Mi miimiimimimi mi mimi!!" Aragorn/Kermit: "What did he say?" Gimli/Doctor Bunsen Honeydew: "Ai, Ai, a Snuffleupagus(the big brown, shaggy muppet from 'Sesame Street') is come!")
Galadriel: Big Bird; I have funny pictures in my head of this one
Denethor: Oscar the Grouch
Faramir: himself
Boromir: Oscar the Grouch's worm friend (Smiley, Slimey, something like that)
I think that's enough for now.