I found some old 100% wool yarn at my thrift store. Having never tried felting I thought that this yarn (having cost me $.75) would be perfect. I used this pattern http://www.helloyarn.com/miniskulltote.htm. This is also the first intarsia I've done. I really like the way the felting hides some of the imperfections in my working of the design.
standing, after felting
flat, after felting, about 6" tall
flat, before felting, about 10" tall
eww, the insides
(The after felting pictures of the skull look warped only because it is not standing or laying flat.)