Here's an official statement from The Wiggles that used to appear on their website;
Sam has developed a good aerobic level of fitness which enables him to sing and dance. You will notice the LARGE amount of sweat that is on their shirts which is a result of this effort.
Some of the backing music is pre-recorded and replayed on mini disc as this frees The Wiggles to sing and do their dances.
It is more interesting for a child to watch actions and movements rather than a guitar solo (as good as it might be) However, this musical backing is augmented by Murray often playing his acoustic guitar and Jeff playing his keyboard."
There are many times (such as the Captain's magic buttons segment of the show) when the music is totally live.
I think this approach from the 'band' is quite refreshing and candid. Perhaps my open-minded ness to the use of backing tracks is down to the fact that one of the rehearsal studios I have used for many years (was called SoundBack, now called Punch) actually produces backing tracks!