Sloth isn't a Grundo. He is a being from another planet that invaded the Grundos' planet and enslaved them before he came to Neopia. On Neopia he attempted to create his own versions of Neopets, Virtupets, but when that failed, he resorted to mutating the Neopets. Thus, Transmogrification potions were created.
The Space Faerie, catching word of this, attempted to stop Sloth, but he captured her. She could only be freed when kind Neopians adopted the Grundos that were imprisoned in the Space Station and manning the machines that kept her locked up. Once enough Grundos were adopted, she escaped.
As she escaped however, Sloth fired his laser at her. However, she managed to deflect the ray back at Sloth, defeating him forever...
...or so it was thought...
Sloth returned later when Brucey B lost his lucky coin in a game of Cheat. Seeking it back, he trekked through one of the forgotten parts of the woods to discover the Lost Desert. In the Desert, he discovered that the coin he had become so attached to was actually one of the keys to opening an ancient tomb.
Sloth had made sure he acquired the coin in order to unlock the tomb which contained a staff of great power. With this staff's power, he tormented the heroes of the plot (Brucey and co) by turning them into various creatures, such as Wadgets. He proceeded to rampage through the Lost Desert, almost destroying it with his hordes of animated monsters and their leader, the Rock Beast.
However, Sloth was defeated and the staff was destroyed. With the staffs destruction, everything returned to normal, but Sloth vowed he would return.
...and he never did.
Seriously TNT, pick up the Sloth plot. Where did he wind up? What are his plans for Neopets? Bring back that green chicken-headed monster we all love and adore...