It's a head bag!
... with horns... and without.
The little pin badge is a Common Blue Damselfly sold by the RSPB. There is a huge selection of lots of different wild creatures, so far I have a Badger, a Red Kite and a Blackbird, there are lots more though. You can get them at some shops by the tills for a suggested donation of £1.
Yes mum, I knitted it! Tut. I've never managed to knit anything before without dropping loads of stitches and getting really disheartened. However! I found a website that really helped and another that gave me a free pattern for the horny head bag. Learn to Knit is the website that I found the best at showing me the stitches and the UK Hand Knitting Association website had the free pattern for the head bag... sorry, the hat... ahem. You will also find some fab' information and support at the Creative Living Forum.