Thanks for your input, Alan. There isn't much I can do about the belly and hair behaviour unless I try some totally different approach (any suggestions?). Currently I'm using the jiggle deformer. I had to cut down the secondary motion even more now that I made the elf actually move forward rather than walking in place. The mesh gets very easily screwed up...

jakwag: the above .mov is quick time movie and the .avi files in the first page are divx/mp3. I have to go back to divx/mp3 because qt just takes too much disk space

here's an updated version. Not much has changed. He is now moving forward on a ground plane plus I played a bit with the background in AE:
https://kotisivu.mtv3.fi/karppa/temp/elfWalkTest5.avi