Deputy Special Agent in Charge Wayne Williams said the display appears to be harmless, albeit unusual.
Williams told The Associated Press they are not treating it as a threat.
But local officials are not as accepting of the display, which also features Palin's running mate John McCain surrounded by flames coming out of the bungalow's chimney.
West Hollywood Mayor Jeffrey Prang has urged resident Chad Morrisette to remove the mannequins, and Los Angeles County Supervisor Mike Antonovich is calling for an investigation into whether the effigy constitutes a hate crime.
At about noon Wednesday, protesters gathered on the sidewalk in front of the home. They draped two white sheets in front of the entrance, obstructing the display from view.
"The protesters are my neighbors," said homeowner Chat Morrisette. "We're friends. I'm exercising my right to expression. They're exercising their right to protest. I can't think of anything more American."