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Tue Apr 15 2008 18:33 Phone Toy:
The toy has a video screen and four big buttons underneath, each a different color and with a different shape embossed on it. There's also a speaker and a microphone. At first the toy is like a Simon Says game; you push the buttons and you get patterns of sound and light. Over time the available patterns get more complex. I don't know how babies feel about having their own voices recorded and played back, but you could do something with that.
Then the four big buttons gradually become associated with fictional characters who show up on the screen when you activate them. They'll talk or read to you. They'll respond to your mood and when you start learning words, they'll do some simple voice recognition. Then it turns into The Diamond Age, I guess.