A video toy is provided which may include a video screen and first and second housing segments. Each housing segment may have a diorama displaying features and objects to simulate a scene such as an apartment or room. The video screen may move from a position in front of a first diorama to a position in front of a second diorama. The diorama behind the video screen may be visible through the screen. The video toy may be programmed to display characters on the screen that engage in activities consistent with the diorama visible through the video display and simulate interacting with objects in the diorama. Players may interact with the characters through inputs such as buttons. Virtual characters may be programmed to have activities and interactions with the player that are modified based on type and frequency of user inputs.