I've used baby homespun and had them come out great. Also, if you want it smaller, use thinner yarn and smaller needles. A friend of mine did it with two strands of yarn- one cotton and one lion brand microspun- and it came out amazingly soft and about 12" tall...
Eloewien on Ravelry
My Blog: www.dragonwingarts.com
For mom: Celtic Knotwork sweater
For me: Rogue, shawl of my own design
For friends: Foliage hat, dragonscale wristwarmers