The opening act of the 1980 World Puppetry Festival was complete with puppets, politics and pandemonium. The pandemonium was reserved for Miss Piggy, the only puppet known to grace People magazine's cover.

Oscar the Grouch, one of the "Sesame Street" favorites, stole the last spot on yesterday's Kennedy Center program, a spot that had been reserved for the prima donna pig. But Miss Piggy managed to steal the spotlight by announcing her engagement to Kermit the Frog. The audience went wild with children's squeals (and quite a few adult hollers) but Kermit quickly denied the match.

"The Muppet Show" and "Sesame Street" characters were part of a special program to celebrate the international puppetry convention being held in Washington this week. Sharing the stage were Burr Tillstrom and his puppets Kukla and Ollie, Bil Baird and his marionettes, and ventriloquist Shari Lewis and her puppet Lamb Chop.

Kukla and Ollie, recognizable only to the over-30s in the audience, introduced the politics in the show. Ollie refused to emerge from the puppet pit until "Hail to the Chief" was played. Calling himself "the dark dragon of the year," Ollie announced his presidential candidacy. "I'm going to cut taxes by 30 percent," said Ollie. Kukla reminded him that that was Ronald Reagan's promise.When Ollie vacillated about whether to cut social or military programs, Kukla reminded him that that was President Carter's dilemma. "If all else fails," said Ollie, emerging with a set of big teeth, "they won in 1960, 1976 and they will win in '80.

The kids in the audience were noticeably restless (discovering the lights at the end of each aisle and so forth) until Shari Lewis asked them all to shout out their names. From then on they were captivated. Besides a funny routine with Lamb Chop about thumb-sucking, Lewis performed a solo song and dance about her dream to perform with Fred Astaire, in which she managed to rhyme Brooklyn Dodgers with Ginger Rogers.

Lewis too took a swipe at Washington politics when she described her work. "Washington has always been fascinated by someone who could work while someone else sat in their laps."

At the intermission, Susan and Charles Zentay, 8 and 6 years old respectively, voted for Lamb Chop as their favorite puppet in the show. "Some of it was really funny," said Susan. "And we have our own hand puppets at home. Some of them have heads and some of them don't have any bodies. But we like them all." The Zentay family was waiting impatiently for Miss Piggy. In the audience Elizabeth Lorris, 17, a student from Buffalo, was wearing a "Miss Piggy for President" button. "Well you see, there's a pig store in Boston that sells all these pig things. And I just think the Muppets are brilliant," she said.

Kermit, in a sharp black tuxedo, did a soliloquy before Miss Piggy appeared. All sorts of ragtag bird species, including, of course, the yellow marvel of Sesame Street, Big Bird, did a samba and a limbo. Bert and Ernie argued about the living arrangements at Georgetown University and the absence of Ernie's pigeon from the bird number.

While Kermit vigorously denied any romantic attachment with Miss Piggy, the two sang a medley of romantic songs. And Jennifer Reiley, 2, screamed at the top of her lungs. It was the moment she had been waiting for, and it left her speechless. All she could say, prompted by her mother, was "Big Bird" and "Miss Piggy." Maybe that was the kind of magic the show was all about.