An excerpt from Empire's Gremlins reunion is up on the magazine's website, and it includes the story about how they first tried using a monkey dressed as a Mogwai before settling on puppets. There was a lot of poop involved.
The whole article is in this week's magazine, but here's the bit about designing the creatures:
Chris Walas: I pulled out the first draft the other day and read it. And I have no idea how I could be so stupid as to commit to that project, I'd written one word on the front cover: "HA!" I didn't think it could be done. The technology didn't exist. I didn't have a shop or a crew. But I was desperate for money.
Joe Dante: Chris and I had worked together since Piranha, and we were planning a 3D remake of Creature From The Black Lagoon. Then Gremlins came along. It was a good job, but there just wasn't a lot of budget. All these creatures had to be created and we had no idea how we were going to do it.
Walas: Weren't you thinking about monkeys?
Dante: First we talked about stop-motion. Then realised we'd still be shooting if we did that. And at one point someone — I hope it wasn't me — suggested we try monkeys in Gremlin suits.
Rick Baker: Hey, it worked in (Laurel and Hardy movie) Babes In Toyland.
Dante: But that one just had a Mickey Mouse head on. We actually did get a monkey and put a head on him and watched him careen around the editing room, pooping on everything in terror. We decided it wasn't really going to work out.