Wool Hair

Can anyone remember the name of an 80’s soft toy that had long multi coloured wool hair. It had 4 legs???

Although everyone elses answers could work, I immediately thought of a Popple from your description…

Redken wool shake 08 – [...]

Dog Wool Hair

do the Puddles (dogs) have normal hair, or is it WOOL?

Yes. Everyone knows that Puddles are part sheep.