The Mealworm an item exclusive to Earthworm Jim 2... and moreover, it's a multi-level exclusive. Mealworms are used as method of payment in the various mini-games found in Earthworm Jim 2.
One example of this is in the "game show" section of Villi People/Jim's Now a Blind Cave Salamander, where a mealworm will earn Jim an extra question.
Another use of the mealworms is in the Carnival of Scars. The mealworms can be exchanged or for a whack of the punch tower, during the strength test, in the level Inflated Head.