Although an Arduino or other microcontroller platform is designed to follow a certain sequence of events, with some thought you can create a device that can have a wide varierty of reponses to external stimuli and even have a little bit of personality. This type of device has been achieved by Evan Frazier whose "Brobot" has a range of emotions which can be articulared with various output devices.
With LED matrices for eyes, servo horns for eyelids, and his head mounted on a pan and tilt base, the Brobot can move about and also express emotions via physical actions. Furthermore it can detect the presence of others nearby with an ultrasonic distance sensor - or be controlled remotely via Bluetooth and an Android device. For an excellent explanation and demonstration, view the following video:
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