Yes, yes, YES! We just got a cow hand puppet (named him Moo!) yesterday! Yoda loves it! Always jumps at it, bites it, wants to play with it... We also have a few others too, the puppets that DON'T work too well are the string ones (like you control from above), as the strings get all tangled, and Yoda chewed that one up pretty good.
It's a hoot to watch him play with the hand puppets though, it's fun entertainment too!
