You can dry a few pieces that looked ripped and curl it a little the when stiff stick it around him blending it into the softer fondant....wish I could sketch it out for you..it would be so much easier to explain. pm me if you need more details I can sketch it out take a pic with my phone and text it to you.
I would do what carmijok said. And maybe you can add a few pointy layers of fondant around the base of Elmo too, to cover up anything weird looking.
Someone was discussing this recently for a fireworks cake. Some good info in this thread.
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