There was a report
in a newspaper that HaRav Eliyahu ruled that baby dolls are included in the prohibition of owning statues. I have not independently confirmed this ruling, however Rav Elyashiv shlita in his sefer on Rosh Hashanah concurs with this ruling. I quote from the sefer below.
Jerusalem - In a tough break for the children of Orthodox Jewish families, a former grand rabbi of Israel has urged parents to amputate their dolls to avoid the perils of idolatry.
Basing the move on a Biblical ban on the possession of idols, Mordechai Eliyahu, a Sephardic rabbi, broadcast his edict on a religious radio station calling for an arm or a leg to be dismembered.
In the case of a teddy bear or other stuffed animals, the children will see their beloved toys lose an ear or an eye instead.
"It is very important that these toys do not remain intact so as to remove the element of idolatry," said Eliyahu.
His son, Shmuel Eliyahu, himself a rabbi in the northern town of Safed, said that it was inappropriate to own statues or dolls, even to play with or for artistic purposes.
"They need to be amputated or at least altered," he said.
Shmuel revealed that his father had forced one of his followers to snap off the ear of a replica of a statue of Moses by Michelangelo that he had bought at an exorbitant price.
Religious edicts are not legally obliging in Israel. - Sapa-AFP
The Maharit (2:32) states that dolls which are made for the sake of children to play with are considered a temporary action and they are not included in this prohibition. Rav Elyashiv shlita cites Acharonim who disagree with this ruling and state that it is a Biblical question and cannot be dismissed out of hand. Rav Elyashiv rules stringently and he says that one must deface the form of the dolls somewhat in order for it to be permitted to remain in the house.
Here is a summary of some of the conclusions from Harav Ovadia Yossef in regards to idolatry and specifically pertaining to dolls, where he rules that it is permitted.
1. It is forbidden to make a protruding image of a man, and it is forbidden to leave it in one's house. This is only if it is a complete image, but a portrait up to the chest is not forbidden. It is permitted to make dolls for children that look like a full person, and certainly to buy and sell them.
It is permitted to take a photograph and to paint the picture of a person, which is not protruding at all. Some are stringent about this, but the custom is to be lenient.
It is forbidden to make the image of the four forms that were on the Heavenly chariot: the lion, eagle, ox and person. This is only when one makes all four together.
2. A protruding image of a person, in which one only sees one side (a profile) is permitted since this is not a complete image of a person.
3. The Shulhan Aruch writes that one can not make the image of the sun, moon and stars, whether protruding or flat. Rabbi Yosef Hayim explained that it is permitted if one does not make the full picture of the sun. However, a picture of the moon is forbidden even if a part is missing, since that it is how it is seen at times. The Maharam Mirotenberg permitted a picture, made only of colors that is not protruding at all. However, many do not agree with his opinion, and it is best not to rely on it.
4. It is forbidden to build a house in the image of the Bet Hamikdash, in its exact measurements, It is also forbidden to make a shulhan or menorah with seven branches, as existed in the Bet Hamkidash. If the menorah has seven branches but has electric lights on top, with no place for oil, it is permitted.
5. A small model of the Mishkan, for educational purposes, is permitted.
6. A cross, which Christians hang around their necks, does not have the status of Avodah Zarah, since Christians do not bow down to them, and the crosses are only a reminder of their avodah zarah. If a Jew finds one, he may sell it to a gentile. If a medal is given to a Jew by the government on which there cross, he may wear it. It is better that he not do so regularly, but only when he is visiting government officials or on official occasions. (End of summary)
I heard a Shiur from Rabbi Eli Mansour who cited the sefer Halichos Olam (7:281) from HaRav Ovadia Yossef where he rules that it is permitted to buy dolls for the children. He explains the reasoning for this as follows: Everyone knows that the dolls are not intended for worshipping and therefore there is no concern that others will suspect that the dolls are for avoda zora. Secondly, he states, that most of the time, the dolls are mistreated and handled in a degrading manner and therefore it would not be prohibited. He does rule stringently regarding a trophy that is a full image and sits on top of a mantel with honor: there it is a legitimate concern and one should deface it somewhat.