I think that Noddy is animation.  Perhaps you are looking for a technique called Stop Animation. http://en.wikipedia.org/wiki/Stop_motion 

we know stop motion...its like noddy with puppets ....

I still think a green screen would be the best option.
http://en.wikipedia.org/wiki/Chroma_key

You can still have a physical set, but it's much easier to 'hide' the puppeteers with this method.

Other than that, you'd be stuck using live performance techniques like 'light curtain', or just having the performers wearing black gloves and using rods.

Here's an example of what everyone is referring to by "green screen" (or at least a variation on it) from a TV pilot I directed this past year:



We shot the puppets - which were really just articulated stuffed toys - bunraku-style using chroma-key (green) rods and suits.



After each take we then shot a background plate, which is the same shot without any puppets or major props in the scene.



In post production the rods and puppeteers' arms are removed and the effect is pretty seamless.

This is essentially a digital version of the traditional "light curtain" or black light techniques that were mentioned above. I like it better than shooting against green screen (although that's sometimes necessary) because the characters are in a "real" environment and it's much faster to shoot with puppets than stop motion. A lot of commercials are done this way.

Interesting - I'd never thought about not using an actual screen before. I'd think it would also help cut down costs, since not many people have access to a screen.

In the Netherlands we had a tv serie that was called "De tuttels" They used only stuffed toys and the puppet players had a t-shirt with the background on it. I found a link on you tube about the tuttels Maybe you can use it.

Wow..thts a lot of information...i think we need to bring in some real pros to get this work...
By any chance, are there any tricks to make eyes work?
Thnks a lot for the inputs..
sandy

Eyes work how? Blink? Rotate from side to side/up and down? ...

something like this..



but more organic and natural and the biggest challenge is to have foot interaction with the floor on the set.
This seems to be the only thing we need to crack i guess..

...i think we need to bring in some real pros to get this work...

I agree with you.   The last video you refereed to of Between the Lions was created by professional puppeteers with years of experience.  Good puppetry takes a lot of skill and learning.  There are no easy answers.

have you seen Luna's Puppets? He has some pretty awesome stuff!

http://www.lunaspuppets.com/