Ok, first check out this video-- it's a live performance by David Bowie (with counter-tenor Claus Nomi singing backup) on Saturday Night Live 32 years ago.
Here is my question: How did they do that on live television in 1979?
Here is a much later performance by Beck, which is the only other instance I recall of musicians turning into puppets on Saturday Night Live.
Very simply: two camera feeds and a green screen behind Bowie. If you look at his shoulders in the very first closeup, you can see they're transparent with a tint of green, for the Chroma Key. Bowie's not standing on the same stage with Klaus and the other guy - he's in a different room, with a puppet's body draped around his neck.
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