Laffo got it absolutely, 100% correct.
Other than this piece, I've seen a lot of the other Labyrinth pieces (Sir Didymus, door knockers, door guards, "helping hands,") that are all in excellent shape, and still owned by the Henson Company.
Now then, why didn't the Henson Company restore Hoggle? Either they didn't know about it, or they just didn't care. My guess is that they probably were aware of it being down there, but they just didn't care about investing the time or the money into obtaining it and restoring it. I mean, if a company really cared about a piece of their property, do you think they'd let it sit around in a salvage store for as long as it has? Besides, if Henson had restored it, they would have restored it to keep, which is not what Unclaimed Baggage wanted. They wanted to be able to put it in their little museum and claim that they owned Hoggle. So, the only way to achieve this goal is exactly how Laffo described it.
To Henson it was just another puppet, something of which they have thousands.
And honestly, do we really think that this is the only Hoggle in existence?
I don't.
No need for worries, guys. I'm sure there's a pristine (albeit a little aged) Hoggle out there somewhere.
-Andy