Prize muppet? (5)
I believe the answer is:
oscar
'prize' is the definition.
(an Academy Award)
I don't understand how the rest of the clue works.
Can you help me to learn more?
(Other definitions for oscar that I've seen before include "The familiar Mr Wilde, playwright" , "Statuette awarded by Hollywood Academy" , "Film industry award" , "Librettist Hammerstein, d. 1960" , "Film award; --- Hammerstein" .)