Suggestions on handling a muppetborn?

New DM here, running Lost Mine campaign with family. Sister is in college and has been playing d&d for a few years whereas the rest of us are fairly new. She comes down now and then and wants to join campaign when she does. Had issues with her first character and so when she asked if she could do a Muppetborn I decided fine, as long as it's not like the other one.

So! She made a lvl 3 (same lvl as all other characters) Muppetborn Cleric, hand of the grouch subrace. I know the race itself has the +2 AC due to considered to always have 1/2 cover and that's something I've seen other people wouldn't allow also the no stealth disadvantage in heavy armor. So I was wanting to see other people might do in a situation like this where the character doesn't really contribute to the campaign as a whole.

If you're trying to run a serious campaign I wouldn't allow it, looking at the race it seems like way to much for no weakness. If you already had issues before and now this you may ask if she is actually wanting to join and if so make something official that can join your group from time to time (like in critical roles campaign) its your campaign and especially if you are new she should be more considerate of that IMO. Just thinking of a high dex cleric in heavy armor with free 2 ac and no stealth disadvantage... anyways there are plenty of races in the official books surely she can have fun with something properly balanced.

I would suggest getting to grips with the system running only official PC options, then that puts you in a better situation to judge for yourself how well unofficial content will work in your game. However I prefer my games to have some level of serious plot, coherency, and balance. Muppetborn clearly fall outside this style so I can only assume your game is intended to be particularly silly, jokey and even more full of mayhem than a regular game... in which case you absolutely could leave it as it is.

For a character that only shows up every now and then I guess it's fine. Treat her like a NPC that can help out on the occasional adventure. It is a little overpowered as a species though. To balance it I would lean into it's fabric construction and give them vulnerability to fire damage, and if they get really wet (like from swimming or being caught in a torrential downpour), they move at half speed because they are waterlogged. If you really want to nerf it you could also give it disadvantage on attacks and enemies have advantage of attacks against it in it's waterlogged state because it's movement is so restricted. But it would be an easy enough fix for the character. They could be quickly dried off using the Prestidigitation cantrip.