The ultimate goal of this project was to have something that looks and feels like a regular teddy bear, but can be plugged into the computer (via usb) and used as a video and audio input without any degradation in quality. I think I achieved these goals fairly well, although next time I would use a higher quality camera.
Step 1: Acquire a stuffed bear and camera
There are several considerations to keep in mind when choosing these parts. First of all, the bear has to be big enough to comfortably fit the camera inside without altering its shape. Since I chose to mount the camera with it looking out through one of its eyes, a large head was necessary. The webcam I chose is fairly small, so it fits nicely.
Another thing to note is the compatibility of the webcam with the end user's operating system. If windows is being used it is typically not a problem, but there are certain webcams which do not have supported drivers for Linux, making them more difficult to work with.
Cams also vary in picture quality. The one I ended up using could use improvement in this department, but I was trying to keep the component cost low. The components of this project were purchased at the local walmart for not more than $50 or so.