My daughter received this toy for her first birthday. It was a little too advanced for her at the time, but now, at almost two she's playing with it more.
This adorable little caterpillar has 26 legs, each corresponding to a letter of the alphabet. It has several modes. In one mode, when a leg is pressed the voice will say what color leg was pressed. In another mode it will simply play 10 seconds or so of a song. In another mode it will say the letter that is being presesd. Finally, it will actually sound out the letters and say words. For instance, if you push D, A, then D it will sound out DAD. Interestingly enough, if you try to spell out a bad word (yes, I tried several) the caterpillar will start giggling.
The drawbacks of this toy: the string by which kids are supposed to pull the toy is too short and the volume is a bit loud.
All in all, it is not my daughter's favorite toy. But she is a farily physical child and doesn't spend a lot of time sitting in one spot for long. So, this may be a better bet for a more contemplative child.