Knitting designers are very imaginative. I recently came across the latest book of two British designers, Sally Muir and Joanna Osborne. It's a very amusing take on knitted toys.
There is an interesting article about the duo here in the Telegraph. It turns out that they have an interesting past first coming to notice when Lady Diana Spencer wore their black sheep jumper to the polo at Windsor in 1981 during her engagement. The red jumper with one black sheep in a flock of white had been a present from a friend.The iconic jumper is now part of the permanent collection at the V&A.
I can see the advantages of the knitted doggies - no dog hair on the furniture, no walking or doggy dirt cleanup and no Vet visits required.
You can find their website here and see some of their more traditional work as well.