In Stephen Sondheim's excellent new book Look, I Made a Hat, he seems to be saying that he was going to be working with Jim Henson himself on the aborted "Into the Woods" film. He writes: "In 1995 Columbia Pictures and Jim Henson approached James and me with a plan to make a movie of the show, using Henson creatures as the animals." He concludes this section with a list of the actors who participated in the second "star-studded" reading, adding wistfully at the end "All that and Jim Henson, too."
The problem is, Henson died in 1990. Also, the New York Times reported on a Columbia/Henson "Into the Woods" film in September of 1991. So clearly Sondheim's memory is muddled about this. It makes me wonder though if Jim did indeed approach Sondheim about it in the late 80s, even if things didn't really get rolling on it until after Jim's death. ("Into the Woods" opened on Broadway in 1987.) Sondheim is quite good with the details ("God is in" them, after all), and it seems unlikely he would misremember talking with Henson himself about the project, even though he obviously got the dates wrong.
2/27/12: UPDATE here!