I’m currently playing through this one on my new PS3 slim and must say that of all the unique features Little Big Planet has, the puppet-like emoting is the most fun I’ve had in ages. Here’s a little bit of info on the animation in (I believe the incoming PSP version of) the game.

Looks like a simple rig in Maya to compliment the game nicely, and they use morph shapes for the facial emotes which seems a natural fit given the squashiness of the character.