Yes it's a room and there are balls, and the puppet dances. It's constructed the way you might make such a toy in real life, if you had such a thing as no self-collision in real life.
1 toggles vertical oscillation
2 toggles pivoting an off balance weight on the head.
3 toggles pivoting an off balance weight at the hips.
arrows bring the puppet up, down, left and right.
The only new feature I use in this scene are the custom textures, and the gear tool. And some of the shapes were made using the new ability to add, subtract and cut shapes. The additional collision grouping is also useful.
Play fast paced trance music behind it and you may think that it is alive.
Like a real puppet this one can be destroyed by ramming it into things, so don't do it.

, or just hit undo.
http://www.youtube.com/watch?v=DS7vQW38btI