I made these cute little yarn dolls for the kid's stockings last week. I was going to do a tutorial, but then I thought why try to reinvent the wheel, especially since I am such a lousy photographer. I found a great tutorial here, which also shows optional clothes and faces. http://www.craftstylish.com/item/27585/how-to-make-yarn-and-felt-folks
These were fast and easy to do, and didn't take much yarn.
I would recommend using soft yarn though, since these are for holding and snuggling. These are made of soft wool, and cashmere blend yarn.