In your photo album you show makeovers for two puppets. I just received several in that same condition.
After you cut the worn spots around the mouth, did you glue or hand stitch the head piece to the mouth?  It looks as if you stretched the fabric, and did not do anything with the foam? Did the new hands come from fabric cut from the old body? 

Thanks for your help.

Anyone have any ideas on this?

Let me see if I can find the thread that she talked about this.  I think there was more details in it.

Found the thread. http://puppetsandstuff.com/community/index.php/topic,3945.0.html
I think she used fabric from the old puppet to make the hands. I did not see specific mention of whether she glued or hand stitched the mouth but it looks like it is stitched.

Thanks.  Hoping I have enough "good" fabric to repair the 2 I need to fix.

I cannot understand why people allow puppets to get so dirty and worn.  I realize on these particular puppets the mouthplate wears through the fabric used. And people tend to leave the rod arms on (these were zip ties that attach to a rod), which causes wear.

I have a bag full of dirty puppets that I need to get cleaned up.  Build a Bear has a great spray cleaner.

Don't forget to take pictures of the project.   Sometimes wear just can't be helped. In most cases I think that it is better just to make new puppets.  Often if the outside is that broken down the insides are just as worn or soiled.

MsPuppets:
I think I may have ripped out the seams between the red mouth interior and the flesh around the mouth.  The worn lip edges were then stretched so they would be hidden under the pallet (they may have been cut off, I can't seem to recall) and the mouth was resewn by hand using a curved upholstery needle.  It was not an easy thing to do.  New face and hand fabric was harvested from unseen portions of the puppet - the body front and back and the upper arms.
Hope that helps. 
Pam