Observation - It seems that you are trying to make visible the mental and physiological states to the user as well as providing a tangible communication medium for the users.

System - It's not exactly clear how the system is being used. What exactly does a person do to the bear and how is that represented? Since the data is collected by the EEG cap, what is the tangible aspect of this system? How do the other users interact with the bear to communicate with the user wearing the EEG cap? How come only EEG signals were selected? There are several other physiological sensors -- galvanic skin response, heart rate monitors, etc. (E.g. ping pong game with heartrate) There are several layers of mapping happening -- Thoughts -> EEG -> Teddy Bear and then interaction with the Teddy Bear causing other events... These will all need to be carefully thought out. A promising aspect of the project is the medical application, and in particular helping improve communication for people with autism. But it's not clear yet how that interaction would work in detail.

Use-case -- You may want to consider outlining some use-cases to help flush out your design.

Related Work -- There are similar projects looking at various aspects of this idea, and it will be important to differentiate from them. There are several projects which deal with long-distance relationships ( e.g. http://io.infosci.cornell.edu/, etc.). NYU project on Autism ( http://itp.nyu.edu/show/spring2006/detail.php?project_id=458, and others I think). And brain-wave games -- i.e. MindBall.