An original Teddy Ruxpin doll would probably have been the easiest to hack, replacing the cassette tape with a stereo audio input and generating the pulses necessary to animate him at your discretion: http://www.illiop.org/workings.html
The Nabaztag rabbit has been resurrected a few times, it looks like you can buy a new "Karotz" model for US$130, needing only a plush exterior: http://store.karotz.com/product/22/karotz
There's also a new startup named ToyTalk, which seems to be doing something in this vein: http://www.toytalk.com/
You might find it easier to start making something that's not quite as complicated as an animatronic toy. Soft electronics projects and startups have been around for years, with shirts that hug you back and pillows that light up:
Instead of regular Arduinos, you can use sewable electronics specifically designed for this, like the Lilypad, which you can get at SparkFun, in their e-textiles category: https://www.sparkfun.com/categories/204
It really just depends on how complicated you want to get with it. Depending on your experience, it might be best to start small, working through the projects in those books.
Well, I remember trying to get my cousins to cut open their stuffed animals so that I could stuff my Lego Mindstorms creations inside. I'll be checking back in this thread, definitely something I'm interested in as well.
Most of the projects in this vein are defunct, including the Tux Droid, the original Furby, the original Teddy Ruxpin, and the Nabaztag rabbit.
I always felt the story of Felix Gallo's "Poppet" project at Data General was interesting: http://metatalk.metafilter.com/13606/#384503
An original Teddy Ruxpin doll would probably have been the easiest to hack, replacing the cassette tape with a stereo audio input and generating the pulses necessary to animate him at your discretion: http://www.illiop.org/workings.html
The Nabaztag rabbit has been resurrected a few times, it looks like you can buy a new "Karotz" model for US$130, needing only a plush exterior: http://store.karotz.com/product/22/karotz
You could stuff another sort of mechanical toy, like a RoboSapien RC robot, into a stuffed animal: http://www.youtube.com/watch?v=e_WJ23Zg1Rg
There's also a new startup named ToyTalk, which seems to be doing something in this vein: http://www.toytalk.com/
You might find it easier to start making something that's not quite as complicated as an animatronic toy. Soft electronics projects and startups have been around for years, with shirts that hug you back and pillows that light up:
Pillow Talk: http://www.joannamontgomery.co.uk/littleriot/?q=node/11
Chatter Pillow: http://sternlab.org/2006/11/chatter-pillow/
For making one yourself, books on soft electronics might be useful.
Making Things Talk: http://shop.oreilly.com/product/9780596510510.do
Fashioning Technology: http://shop.oreilly.com/product/9780596514372.do
Instead of regular Arduinos, you can use sewable electronics specifically designed for this, like the Lilypad, which you can get at SparkFun, in their e-textiles category: https://www.sparkfun.com/categories/204
Adafruit also has their own line, just launched, called FLORA: http://www.adafruit.com/category/92
There are lots of "robots lite" projects you could wrap in fuzzy fabric, too, like this animatronic head: http://www.kickstarter.com/projects/jeffkessler/tj-an-animat...
It really just depends on how complicated you want to get with it. Depending on your experience, it might be best to start small, working through the projects in those books.