In large bowl, combine 1 cup flour, sugar, cocoa powder, undissolved yeast and salt.  Heat milk, water, and butter until very warm (120-130°).  Gradually add to dry ingredients; beat 2 minutes at medium speed of electric mixer, scraping bowl occasionally. 
 
Add egg, vanilla and 1/2 cup flour, beat 2 minutes at high speed, scraping bowl occasionally.  With spoon, stir in enough additional flour to make soft dough.  Knead on lightly floured surface until smooth and elastic, about 4-6 minutes.  Cover, let rest on floured surface 10 minutes.
 
Divide dough in half.  For the body; take one half, knead chocolate morsels into it, and form a ball.  Place on bottom end of large greased baking sheet; flatten to make 5-inch round. 
 
For head, remove 1/3 of remaining half, form into ball.  Place on large baking sheet above body, flatten slightly, pinching to attach. 
 
For nose, pinch off 1/2-inch ball from remaining dough; place on center of head. 
 
Divide remaining dough into 4 equal portions; roll each to form 6-inch ropes.  For arms, arrange 2 ropes across body; attach by tucking one end of each under body.  Shape remaining ropes into ears; arrange above head.  Attach by tucking one end of each under head. 
 
Cover, let rise in warm draft-free place until doubled in size, about 30-45 minutes.  Bake at 350° for 45-50 minutes or until done, covering with aluminum foil after 20 minutes to prevent excess browning.  Remove from sheet; cool on wire rack.  Decorate as desired.