I've been trying to find this kids movie for a really long time. I'm pretty sure there were puppets used and in the beginning there is a scene where basically if a kid doesn't go to sleep before a certain time a scary guy comes and abducts them and puts them into a sack. There may have been a princess or something... im not sure.

Sounds like Labyrinth

Its not the labyrinth... these puppets were marionettes... not like jim henson puppets. Should have been more clear about that. And it was one guy... not a bunch of little goblin creatures.