I was thinking the idea was that Bowser breaks into the performance when he kidnaps Peach after World 7 and that's when [dukar] gets real. World 8's levels look like the end-of-level sections from before, which makes it look like the backdrops have all fallen down. The curtain still comes down after World 8, so it's still actually part of the play, but it was a bit of a fourth-wall-break to jolt the audience, kinda like that time Hooktail ate the audience. All-Stars took out the backdrop-less look of World 8, and generally went for a more realistic look in the rest of the game, but the curtains are still there at least.
I'd still really like to see a Mario game (either an SMB3 remake or a whole new thing) that focused more on making it look like a play, along the lines of Kirby and the Rainbow Curse and Yoshi's Woolly World.