Activision Blizzard has gone all-in on its bet on the Skylanders franchise. Last year’s Skylanders: Spyro’s Adventure was the top new video game franchise of 2011, and consumers purchased the toys associated with the game characters  more than 40 million times.  If stacked on top of each other, those toys would form a tower that is 2,300 miles high; and the population of Skylanders toys sold now exceeds the population of England. So the company is pulling out all of the stops for the sequel, Skylanders Giants.

We visited the Toys for Bob studio headquarters in Novato, Calif., to get a hands-on preview of the new game. The question of the day: Does it still have the same magic that the previous game did? Well, fans need not worry. Indeed, every aspect of the new Skylanders Giants, which is being made by the studio’s team of 100 developers, suggest that Activision Blizzard is going all-in with its investment in this new hybrid toy-game franchise.

The magic of Skylanders is that it marries physical toys with virtual realms. It comes with a “portal of power” that plugs into your game machine. You simply take a toy character and put it on the portal, which then activates and lights up. The character lights up too, and then it appears inside the Skylands game world as a playable character. As “portal master,” you can swap out characters anytime that you decide that you need a character’s special ability to advance in the game. Once you take the character off, the upgraded capabilities are stored to the toy’s memory, so it picks up where you left off the next time you use the toy.

The surprise about the original Skylanders game was that it was fast and responsive. The technology may have been clunky in years past, but now it is refined. On that front, Skylanders Giants still scores high. Now you can put a Skylander Giants toy on the portal and the toy lights up, even though it doesn’t have any batteries. How’s that for some new magic?

Activision and Toys for Bob created 32 toys for the first game. Last Christmas, those characters sold out, became extremely valuable, and resold for as much as $500 on eBay last holiday season. The game debuts on Oct. 21 on the Wii, Xbox360, PS3, and the 3DS. Mobile versions are expected, and the Wii U version debuts during the holiday season.

Now Toys for Bob is adding 16 new Giants characters. They’re huge monsters with their own unique capabilities, like TreeRex, a fearsome dinosaur with tree branches for limbs. Each new character has personality and a lot more audio characteristics. When TreeRex jumps off a ledge, he yells, “Timber!”

The Giants move slower, but they’re powerful. You can just walk around and slam TreeRex’s hammer into the ground and take out the tiny enemies easily. As you do so, you collect points, rewards, and treasure. You have to solve simple puzzles, like pushing blocks into holes in the ground so that you can cross into new areas. With the giants, you’re tempted to just smash everything in sight. That’s a lot of fun, but it could get boring.

But the Giants aren’t invincible. In one scene, a Giant had wiped out all of the enemies on a lower level. But he couldn’t reach the enemies on a higher ledge, since Giants aren’t so great at climbing. A flying Skylander had to come to the rescue. If your Giant gets wounded too bad, you can pull it off the portal and replace it with another character. When you find food, you can put the Giant back on the portal and heal it.

Physically, each Giant is twice the size of regular Skylander. So the toys are more substantial and impressive. I-Wei Huang (pictured left), director of toys and characters at Toys For Bob, said in an interview that he and studio chief Paul Reiche (pictured above) labor over the design of the characters. They create sketches and iterate back and forth on every little detail. Then they create animated models and print out 3D plastic characters. Huang says that the characters often have smirk or some other silly characteristic that uniquely identifies them as a Skylander. Once they get the toy right, then they work the character into the game, making sure the character’s powers are offset by some kind of “rock, paper, scissors” style weakness.

“We’re always trying to push the boundaries,” Huang said.

That seems like a pretty creative process, and it is paying off in some memorable characters. That’s important in a world full Pokemon and all sorts of monsters in a host of kids products.

There are also new LightCore Skylanders like Prism Break that light up in the game and in the real world. Those LightCore characters don’t need any batteries since they tap a wireless signal that supplies electricity to the light.

Besides the new Giants, the game has new smaller characters like Jet Pack, who can use a vacuum gun on enemies during battle. You can spend a lot of time in gladiator-like challenges where the bad guys throw more and more enemies at you in waves.

The game has new Hero Challenges and more Battle Mode game play so that the title is more replayable. The game play is integrated across console, handheld, mobile and online platforms. Toys for Bob has created new Skylanders characters, Series 2 Skylanders with a new upgrade power, and all of the older characters from the first game are compatible with the Giants version of the game as well. Skylanders Spyro’s Adventure characters can increase their top-level cap from 10 to 15. But the new Giants characters cannot be used to play in the older Spyro’s Adventure video game (that will be marked on packaging).

The new game world is bigger and has all new arenas. It also features Elemental Zones and closer integration with Skylanders Universe, the online world for the game. The game has easy, medium, hard, and nightmare difficulty modes. The game features an in-game store where you can spend virtual money on virtual goods. You can ride in a ship to an island. The sounds are a lot more interesting than the previous version. You can, for instance, watch your characters sing rap songs.

The toys are almost more interesting than the game. I played the Wii version, and the graphics could be better. But the overall effect of having both the toys and the game is a feeling of immersion in a fantasy world. On that front, Skylanders Giants succeeds just as well as the original did.

A Starter Pack with the game software, a Giant, a new Skylander, a Series 2 Skylander, three trading cards, and a poster costs $74.99. The Portal Owners Pack with the game and one Giant is $59.99. A Giant toy costs $14.99, a LightCore Skylander figure is $11.99, and a new Skylander figure is $9.99.

If I were a kid, I’d be celebrating the launch of another installment of a cool new entertainment franchise. If I were a parent, looking at all of those things my kid would want to buy, I’d be living in fear.