Interactive electronics toys was a huge trend at Toy Fair '11, and one of the most innovative offerings was Activision's Wappy Dog—it's both a physical toy and a Nintendo DS video game, and they work together.
The goal is to raise your dog from puppy to adult pooch, evolving its personality, skills, and level of happiness as you play; it's reminiscent of the popular Nintendogs DS game, only with a real-world component. Kids can play with Wappy in Home Mode, in which they interact with the toy dog, playing games and training it, through a Nintendo DS; or in Outing Mode, which lets them play with their pet only on the Nintendo DS (say, on a car trip when the toy puppy has to stay home). Each time a player interacts with the toy dog via the game, any virtual play syncs up with the toy, so Wappy has one consistent personality across both platforms.
The cute little robotic toy dog expresses itself through movements and sounds: It'll cheer if it wins a game and whine if it loses, for example. It can also sing and dance, and kids will be able to teach it new tricks. Virtual activities include playing with toys and mini-games, grooming and feeding the puppy, and customizing its appearance and environment.
I saw a closed-door demo of Activision's Wappy Dog at Toy Fair, and though it is still in prototype, it looked quite engaging (disclosure: I was a Nintendogs addict for several months, back when that game came out). Pricing hasn't been announced yet, but Wappy Dog will be available this fall.