For a newer and much more detailed discussion about the Hello Kitty controversy, please see Hello Kitty is Popular, but is she Evil? [added September 7, 2014]

*The Real Story Behind Hello Kitty!*
So I’d love to write a Hello Kitty blog myself, but as I need to do more research, I’ll leave you with the above story (click on link). I don’t actually know how accurate the referenced post is since no sources are provided, but I’m going to trust that it has some legitimate information in it. [Please see Anita’s comment below for more information on the sources used and on the controversy itself.]
When starting my research into why I keep getting people to my blog that are searching for Christian dis-ease with Hello Kitty, I DID come across a page that tried to make Hello Kitty into some kind-of underhanded conduit to pagan deity worship. Seriously? When I was a kid, I had dolls and stuffed animals. They could ALL be linked to the same sort of thing if anyone wanted to make an argument for it, and actually believe it. All around the internet there are young anti-theists who see this kind of “reasoning,” and it only gives them more ammunition for blasting away at the intellectual integrity of Christians.
Hello Kitty only gets picked on because the character is popular. If she were a Disney doll (as an example, but go ahead and substitute any brand that is more familiar or less “foreign”), a stuffed animal, that little kids hugged, lugged around, and invited to their tea parties, you wouldn’t be reading about her, coming up with concerns about some kind of demonic worship coming out of Japan.
What bothers me the most is that Christians can be so worried about such nothing things when so many people in the world, and in our own country, are homeless, dying from lack of medical care, being forced to lose everything and live in their cars because they get laid off and no one will hire them . . . and we hear how conservatives and libertarians just live on their ideal that there is this golden world where jobs magically appear for anyone who tries and that everyone can get the health care that they need . . . if only their family would sacrifice all (I guess . . . but that doesn’t seem to work for the sickest with cancer and other intense-care diseases). If anything, money is idolized here, along with those who are “assertive” enough to maintain a line of part-time, minimum wage earners so that stock holders can continually have money funneled into their accounts. How is a material item like a Hello Kitty doll evil? Aren’t people’s hearts evil when they put greed and self above a human that is made in God’s image?
Sorry, it just makes me crazy to think there are so many real people that Christians should be concerned about, but instead these fluffy issues surface. God has said, over and over, how He is concerned for the disadvantaged and that the rich shouldn’t lord over them, cheat, steal, etc., and that the rich will have the hardest time getting into heaven (why is that? I’m not being rhetorical).
As with anything in life, if you or your children are being tempted to sin or idolize something, then get rid of that thing. Otherwise, let a flower be a flower, a doll a doll, an item that makes people happy an item that lifts the heart and provides a smile in a dark and difficult world. All good things are from God.
If you want a business summary and a bit of cultural analysis on Hello Kitty, you may find this article of interest: What is this Thing Called Hello Kitty? [added 4/23/14]
[Edited a bit on September 6, 2014]