OKAY OFF FANS I JUST HAD A CRAZY THEORY
we see sugar in game in the basement of zone 1, an area inaccessible until very late in the game.
When we fight sugar, she appears to be holding dangling items from strings, much like you would hold the strings to control a doll.
But best of all, before we fight her, we hear her talking of the batter as a “big ducky.”
This is likely in reference to how we persevere the batter in the judges ending, as then we have realized how bad he was and thus the way we look at him is different, as confirmed by Mortis himself as the reason for his appearance.
And finally, Zacharie is familiar with her where’s nobody else seems to know she exists, and we know Zacharie is aware of his universes status as a game.
To conclude: Sugar is only found int he late game, knows the batters appearance based on the truth of his actions, and Zacharie is the only one who knows about her and is the only one aware of the game being a game. From this, I believe there is but one solid explanation for this.
SUGAR IS A LINGERING ENTITY OF A PREVIOUS PUPPETEER IN THE GAME WHO CHOSE THE JUDGES ENDING.