I've noted before that the best works of animal fantasy don't so much anthropomorphize their animal characters as they zoomorphize their human audience's perceptions. That is to say, these works don't turn animals into humans with the serial numbers filed off; instead, they successfully put a human reader's mind into a plausible facsimile of an animal's mind. Self-centered as we are, we often mistake this for "anthropomorhpizing," but it's a different trick.
One of the reasons Watership Down was such a, well, watershed moment in this kind of fiction is because it de-mystified rabbits, showing human readers that rabbit society was anything but perpetual cuddliness. A few other animal fantasy works have risen to this challenge, too; Wayne Smith's horror novel Thor, about the battle of wits between a werewolf and the family dog (told from the titular dog's point of view), really conveys to the reader what it must be like to be a dog: the short attention span, the repetitive thinking, the self-perception of oneself as a member of a human pack, walking through a world dominated by scents, etc.
D&D fails on this project a lot, either treating animals as boring stat blocks with no distinctive traits of their own (sword-fodder, in other words), or playing them up as tropes rooted in pop culture. As Noisms points out, the AD&D 2nd edition treatment of dolphins has way more to do with human projections than with actual cetacean behavior. Which would be fine -- gaming is rooted in and reflects pop culture, after all -- except that treating dolphins realistically might have made them more interesting.
My humble project is an effort to bridge that gap. When I get around to statting dolphins as PCs, (soon...), they're not necessarily going to be romanticized lifeguards for humans and sea elves. They are a hell of a lot more interesting than that.
But I think Noisms goes a bit too far in his analysis of animals as inscrutable. He writes:
We have a failure of imagination when it comes to cute or intelligent animals. We have a natural tendency to impute them with emotions and ideas that are not their own. Animal lovers (I count myself one) are especially guilty of this. It's odd that the more time one spends thinking about and looking at animals, the more one tends to develop this blind spot about them. It often does them a disservice: it infantilises them. It reduces their complex and fundamentally alien nature.Animals are very different from us, to be sure, but they are not "fundamentally alien." At least, mammals aren't.
Evolution is a thing. And there is a thing within that thing called homology, which tells us that related species will share many traits thanks to common ancestry. We know that the brain structures and functions that govern our emotions and behaviors are homologous within mammals, and some are even homologous across greater taxic expanses (the hippocampal system, for instance, appears to do pretty much in birds what it also does in mammals, which tells us that the last common ancestor of birds and mammals probably had this trait, too).
In short, animal minds are not a complete mystery to us. Their most recent evolutionary changes create important differences, of course, but our shared heritage as fellow earthlings means that we still have a great deal in common, even mentally. We actually can plausibly infer a great deal about what it is like to be a bat, as Kenneth Oppel does in his Silverwing trilogy.
The key to animal fantasy is striking the right balance for your audience. You can find works that almost completely anthropomorphize their animal characters, to the point of dressing them up and putting swords in their paws (Redwall, Mouse Guard, some of the Chronicles Of Narnia...). You can also find works in the genre that try to complete zoomorphize the reader's perception of the world (as in Robert Bakker's Raptor Red, written entirely in the present tense, with no dialogue at all). Most animal fantasy falls in the middle somewhere, humanizing their characters enough to make them both sympathetic and empathetic, but also giving the audience a feel for what it must actually be like to be one of those animals.
In the Great & Small game, I plan to have options for all of these interpretations except for completely-anthropomorphized animals.
In the Trucewood Vale setting, the animals are all as sapient as longpaws, can speak fluent Common, and often adventure alongside humanoids.
In the Creepy Crawlies setting, the animal characters are capable of understanding humans with great effort and can talk among themselves, but remain largely in a world of their own.
And in the Legacy Of The Longpaws setting, there will be no magic, no humans, and the animals' cultures will be as realistic as possible.
Stay tuned for all of that later this year.