What about the Narnia books, they're full of talking animals! There's The Wind in the Willows too.
And very small children, at least in the UK, are currently being enthralled by the "In the Night Garden" series with Derek Jacobi narrating, which is on DVD. My 16 month old nephew loves it! For starters Iggle-Piggle is a blue teddy bear who nods and shakes his head and makes gestures in response to questions from the narrator. It really is very imaginative and quite entertaining even for the adult!