Based on the old Centipede Atari game, lots of bobbles make up the centipede and the tops of the mushrooms. Each mushroom is made from a separate little length of yarn. A little fiddly, but easier than intarsia in the round ;-) The rest of the mushroom is duplicate stitched on afterwards.

There is a really good tutorial for duplicate stitching here
http://knitting.about.com/od/knittingskills/ss/duplicat_s...