Deliberate mistake: When Sarah, et al are surrounded by the Goblins in Goblin City, the first cannon fires causing an explosion in front of some buildings, one of which has a hanging sign with scissors on it. Later, after the squatty Goblin says, "Hey! I just fired you!" another cannon fires causing an explosion, and the very same shot is shown, only the first one was flipped. (01:20:15 - 01:25:35)
Deliberate mistake: When the rocks invade Goblin City, one Goblin runs into his home shouting, "I've had enough. I'm going to bed," in a close-up. His distinctive home and the one beside it, are the same homes seen near the large main gate, when Sir Didymus and the crazy riders squared off earlier (and other shots). However, in the close-up, things such as the long rope mounted to the pulley above the door disappear, and yet, pottery, baskets, etc., suddenly appear. (01:21:20 - 01:24:45)
Answer: They are real. This is seen when Jareth turns into an owl and Sarah sees him fly out of the house. Further proof of this is when everybody that Sarah met were in her room and Jareth was looking into her room before flying off.