I am confident the movie you recall is the 1988 film Zelly and Me. I
saw this movie a few years ago and I recognized it from your
description of the little girl and the stuffed animal toy.
Zelly and Me (1988)
"A strict grandmother who's only duty is to prevent her grandaughter
from being rebellious like the girl's mother, never seems to provide
enough love for her. When Zelly notices Phoebe burnt herself, CoCo
fires Zelly, and pushes Phoebe into her parents bedroom because "she's
now a big girl" and throws Phoebe's toys including her Teddy bear
away. Zelly tries to rescue Phoebe, but at the last minute she and her
boyfriend who attempted to kidnap knows it's wrong, and sends her
back. Phoebe, must face the fact of living with her strict
Grandmother, and with a pair of white socks makes a doll for herself."
"A young orphan who lives with her grandmother in a large Virginian
home infatuates herself with the voices of Joan d'Arc. Her nanny seeks
out the help of a rich suitor (David Lynch's first real acting role)
to take her and the orphan away when she realizes that the often cruel
grandmother cannot offer the orphan the love that she needs."
Isabella Rossellini played Mademoiselle Zelly
Glynis Johns played Co Co the grandmother.
Copies of the movie are available on Amazon
Isabella Rossellini IMDb
I hope this helps!
Clarification of Answer by
28 Nov 2006 14:21 PST
The name of the stuffed animal was Wattles. The grandmother punished
the little girl by washing Wattles in ammonia
"At times, what this tale brings to mind are Edwardian stories for
girls. And in the tea party scene, in which Phoebe is seated at a
miniature tea table with miniature tea cakes, there's even a hint of
"Alice in Wonderland." Throughout the film, Rathborne opposes this
bright world with intimations of darkness and perversity. During the
tea party, Coco notices that the stuffed animal Phoebe has chosen is
not the one she gave her, but another -- a creature named Wattles,
who, as it turns out, plays a significant role -- and so punishes her
by washing Wattles in ammonia."
The Washington Post