This year at Toy Fair, Hasbro's Playskool brand showed off a number of interactive Sesame Street toys. My favorite was Let's Rock Elmo: Dressed in an eighties-style tee with requisite lightning bolt, the fuzzy red charmer sings and plays six songs on tambourine and drums.
Place the microphone or instruments near Elmo, and he'll recognize them and sing/play accordingly. Kids can rock too, using the included instruments as well as some sold-separately accessories (a guitar, keyboard, and mic), and Elmo will recognize what they're playing and join in.
The interactive element sets this toy apart; it's fine to put technology into toys, but there should be a compelling reason to do so. I predict kids will enjoy Let's Rock Elmo because of the fun factor, not because of any gee-whiz tech.
Let's Rock Elmo will be available this fall for at a suggested price of $69.99, along with the Let's Rock Cookie Monster Keyboard ($19.99), Let's Rock Elmo Guitar ($19.99), and Let's Rock Grover Microphone ($14.99).