Toddlers can "huggle" each other and pets. I always hated toddlers in TS3 because they couldn't do anything. Now that I'm playing TS2 again, there's magic in every age group :)
Also never hire a nanny. Sometimes she doesn't leave, and then another nanny will come while she's still there to pick up the next shift. I got rid of the nannies by hiring a butler and making him dismiss all other workers. (Also in general, hire a butler. He can do everything so much better than everyone else.)