I used to make figures with gum paste and still do sometimes, particularly for flowers. But recently I have found the the easiest and most malleable medium is LMF, LizMarek'sFondant. It is very forgiving, doesn't crack, and is easy to smooth. It dries firm, but not hard like gumpaste and I'm able to roll it thinly when needed. I use it solely for figures and keep some in the cake refrigerator or freezer to have on hand.

I use MFF for all my cake covering as I love the flavor the best, but as far as figure making goes, LMF is my favorite.

Here's a link to her recipe, plus you will find many tutorials she's made on figure making.

http://www.youtube.com/watch?v=SJCUy3ezRxE&list=TLdDFLZYKPfPQ

Jan

Edited to add: 

This is an example of the versatility of LMF. I used it for not only the figures, but also for the thinly rolled flowers. I only used tylose when making the faces since they were handled the longest and needed to be more firm. The fun thing about fondant, having switched from gum paste, is the fact that the kids loved to eat them.( I did support the figures with a wooden skewer, but they were cautioned before devouring.)

<a href="http://cakecentral.com/g/i/3067666/amelias-7th-birthday-she-loves-fairies-so-these-fondant-fairies-live-by-the-blueberry-wasc-mushroom-in-a-field-of-blue-fondant-campanula-and-yellow-fondant-buttercups-the-mushroom-cake-is-torted-and-filled-with-lemon-curd-covered-with-white/u/700117/flat/1/"><img src="http://cakecentral.com/image/id/8893125/width/400/flags/LL"></a>