I think part of the problem is that most puppetry is done for children, and therefore storylines are limited. I also think that (this is based on some of what I saw recently at the National Puppetry Festival in the USA) that some puppeteers do not know how to write well.

Then again, I have written many plays for 'normal' theatre, but find it difficult to write with puppets in mind.

I don't think that the story lines for children's theatre are any more restricted than those for the adult theatre, just that they're restricted in different ways.  But I agree that part of the problem is that most puppetry is done for children.  I think a lot of performers use the assumed simplicity of the audience to excuse themselves from crafting a fine story, but that sort of writing ignores the fact that the children in the audience are human beings who can and should learn about narrative complexity.  Plays for children are frequently used to teach, but we forget that one way to learn is to be brought face to face with something we don't understand and so be forced to try and make sense of it.
There are few enough people in the world who know how to write well, and puppetry brings a whole new collection of opportunities and restrictions to be considered.  Writing for puppets may be a daunting task, but we still have to do it if we want puppets to be considered as theatrical instruments instead of just toys. 
I suggest the book "Pinnochio's Progeny" to anyone who is interested in some of the ways that the ideas of puppets and automatons have been used in playwrighting, and how some writers have answered the question, "Why, narratively speaking, am I using puppets at all?"

I suggest the book "Pinnochio's Progeny" to anyone who is interested in some of the ways that the ideas of puppets and automatons have been used in playwrighting, and how some writers have answered the question, "Why, narratively speaking, am I using puppets at all?"

I tried to find this book at amazon.ca and amazon.com with no luck, so where could I find such a book?

Here it is.
Link no longer available.

Excellent, thanks Shawn!

What about using contemporary material published after 1923? Is it enough to rename it , change it up a little and say "based on the book by.." or is it necesary to get approval from the author or publisher?

You would need to get the approval of the Author to use it legally.

Thanks Shawn.  Yep...that's kinda what I figured.  What's your opinion about this...? 

I want to write a script for a puppet drama based on the story Susano and the Eight Headed Dragon.  I planned to use banruku style puppets with a black theatre set. However, I was thrown off track when my research showed the origins of Susano are rooted in Shinto religion. Apparently it's not just a fairy tale to some people.  I don't want to introduce anyone to the Shinto religion.  I'm concerned that if I omit those references and tell it only as a tale, it may offend some people that dont share my convictions.  Although there seems to be a similar version (The Two Brothers) in Lang's Pink Fairy Book. I really like the Japanese version better.  It's more dramatic. Is it acceptable to leave out the Shinto references? Or is it better to steer away from this one altogether and just go with the Lang version.  I've noticed that no none has done this one before. Maybe there's a reason for that.

Just out of curiousity - why don't you want to have the Shinto references? I don't get it... (Maybe I'm dumb)

That's a long story.But, I'll try to answer your question as briefly as I can. For the last 12 years I've been doing puppetry for Children's church.  I really enjoy doing puppetry and I have a real love for stories because my dad would always read to us when we were kids. My job as an architectural designer is starting to feel the effects of this economy in the last year or so as well. Because of all that I decided that opening a puppet studio and theatre in my hometown would be a good fit for me. So, I started to work on that. As I was trying to decide what stories to  start out with I met a young artist from Japan at Starbucks who had done a piece on The Tongue Cut Sparrow. He told me the story behind the painting.  I was so intrigued with that story that I decided it would be my first piece. However, I couldnt seem to stretch the story out long enough for a full program. (I did eventually) I started researching other Japanese fairy tales and found the story about Susano and the Eight Headed Dragon.  I was very interested in doing that one too and making it into a month of Japanese Fairy Tales. That is until I realized the connection to Shinto religion.  You see, I still do ministry at church and at outreach events. I plan to keep doing that. But, I didnt want the theatre to be a venue for sharing my faith. I want it to be about storytelling and art.  For that reason I dont really want to promote Shinto or any other religion.  I like the Susano story though as a fairy tale. And I spent alot of time thinking about how to write the script and present it as a puppet drama.  I guess thats why I'm struggling with letting it go. I suppose I was hoping someone would tell me I'm wrong about the Shinto connection. Ha!