Are you ready for some fun facts...RIGHT IN FRONT OF ME!!! Sorry, super excited.
Let's start off with not one, but two Wikipedia pages including the Muppet-specific wiki. Lot of fun facts in terms of the production process and why Jason Segel decided to skip writing the songs in favor of Bret McKenzie's take on classic Muppet tunes.
So, why was Walter a puppet while Gary was a human? Apparently early drafts of the script by Jason Segel (Gary) and Nick Stoller actually posited Gary as a ventriloquist with Walter as his dummy that comes to life and hopes to become a Muppet. So, I guess I see where the idea of this duo started. I think it works better with the two of them as brothers as ventriloquism is freaky. It actually reminds me of Joe Hill's short story "Pop Art" in which a teenager befriends an inflatable boy.
Sudden tangent: I met Joe Hill at Boston Comic-Con last year and got him to sign my nice, hardcover copy of "20th Century Ghosts" which included "Pop Art" and told him how special that story was. Man, I love getting signed copies of books. So, read that story at least, if not pick up his excellent novels.
But, that has nothing to do with Muppets. But this video of Bret McKenzie singing "Life's A Happy Song" with Kermit does!
Bret actually won an Oscar for this movie for the showstopper "Man or Muppet" which is awesome, but not quite as good as this one. Here's a fun interview with him about the process of writing songs for the Muppets. Did you know that "Life's A Happy Song" has been described as a "...light, bouncy, expertly calibrated number..." by the New York Times? I don't agree with their politics, but I have to agree with their taste in Muppet music.