This seems to me like another sketch that was mediocre on the page but became great in the hands of Henson and Oz with the little improvisational gems that they added in:
"You got to talk to it; be nice to it."
"Hmm?...would you care to explain that?"
"Don't tickle! Just point."
Here's an odd thing: nobody is performing Ernie's right hand, and usually when the right hand isn't being used, they would pin it to his chest, but here it's just dangling pointlessly.