Oscar is a Time Lord!

It makes sense. It makes perfect sense.

How else could Oscar possibly fit so much into one trash can unless it was bigger on the inside than it is on the outside?

Time Lord technology! Clearly, his garbage can is a TARDIS that landed on Sesame Street and the chameleon circuit made it blend in with the surrounding junk.

I wonder if Oscar originally looked human, but the chameleon arc technology turned him into a monster to blend in with the other monsters that inexplicably populate the neighbourhood? Maybe the arc has been misplaced amongst all the other junk, which is why he honestly believes he is "a grouch".

I wonder what strange danger is soon to befall the residents of Sesame Street as a result of having a Time Lord in hiding in their neighbourhood? I mean, they're already overrun with monsters - what else could happen to them?

...Unless... Could it be that Oscar is actually hiding from the monsters, who came to Sesame Street to find him and ended up just sticking around because of all the sunny days, sweet air, songs and games? Could the TARDIS have chosen to turn Oscar into a grouch because disguising him as a monster was the perfect way to keep him safe from other monsters?

The plot thickens.