Love claims she is personally responsible for deciding when and where Nirvana songs are used commercially, and says she never gave permission for the song to appear in the kids movie.
But this isn't true, according to TMZ. It is believed that Love sold half her rights to the Nirvana catalog to Primary Wave Music, a licensing company who have the exclusive rights to distribute Nirvana songs.
The licensing company secured permission from Dave Grohl and Krist Novoselic and approved the song for use by the Muppets. Grohl clearly approves, as he also appears in the movie.
At least Love and her daughter Francis Bean Cobain will be paid a cut of the soundtrack profits.
Watch a clip of the song in the movie below. It's not great quality, and the audio cuts out by the second half, but it gives some context to how the song was used. Maybe Love missed the line where Jack Black cries "you're ruining one of the greatest songs of all time!"