Although it was never stated what city or state the show took place in, the radio call letters "WHOG" indicate the Muppet Theater was located somewhere in the eastern United States.
This is the only Muppet Show in which the stage setting is the same throughout the entire episode. According to a poster in the background, the performances are supposed to be taking place "at the Hee-Haw".
In late February, 2021, this became one of 18 Muppet Shows to get a content warning on Disney+, for "negative depictions and/or mistreatment of people or cultures".
The stage setting includes a Confederate battle flag displayed on stage right, with an American flag on stage left. This is a major violation of U.S. flag etiquette. (Although "The Muppet Show" was taped in the U.K., it ostensibly takes place in the U.S.)