This movie is completely insane. It's basically a like a crazy wuxia epic along the lines of Swordsman II, Zu, or Bride with White Hair but with kick-ass puppets. While the puppet's have minimal facial articulation, the range of movement is absolutely incredible. The filmmakers have managed to integrate puppets, wire-fu, CGI magic effects, and live backgrounds in a way I wouldn't have thought possible. On the downside, the plot is fairly impenetrable, characters behave very stupidly, and there isn't as much fighting as one could hope for. Nonetheless, this movie is worth it - it's completely out-of-control and you're not likely to have ever seen anything like it. Give it a try.
Here's my stab at the plot - An evil demon named Mo Kuei is causing trouble so various heroes get together to put him down. Afterwards, his flunkies (who look kind of like Skeletor toys and have the very cool name of The Unfriendly) try to use magical keys get a hold of the titular wish-granting Sacred Stone either to free Mo Kuei or to prevent his final destruction (I wasn't clear on this). In the meantime hero Huan-Jen and his sidekick team up with pretty Ru-Bing and reluctant swordsman Lord Hong-chen to recover the Sacred Stone, wipe out The Unfriendly, and put down Mo Kuei once and for all. However Ru-Bing's father The Great Protector still harbors a grudge against Huan-jen for failing to come to his aid years ago, and has his own plans for The Sacred Stone i.e. world domination and repairing his ruined face. The Protector schemes to use his daughter and Hong-chen against Huan-Jen to acquire the Stone, which has a nasty secret of its own.