The question is, how? Same with user generated content. Are all the stickers and objects going to be created by the devs, and user content is just arranging it?
From the Edge interview:
"With this you can place objects in the world, decide their physical properties, move them, reshape them, create new ones from scratch, apply stickers, paint pictures, add sound, import photos, design costumes. You can work with a blank slate or from a template, and there's a scale of creativity from arranging ready-made components to designing your own. Media Molecule is calling the system Poppet for no particular reason."
Now, that doesn't elaborate on the low level detail of - say - how you create something 'from scratch'. Obviously you cannot start from nothing, cannot produce something out of thin air. I get the impression that a base set of 'building blocks', of various materials, is provided. So you could, say, specify a block of wood, attach some wheels at each corner, and hey presto you have a vehicle of sorts (i'm actually borrowing this from the 'online' video released at GDC
). I'm guessing you'll be able to import stickers from the HDD (as with photos), although the Edge preview suggests you'll be able to 'paint pictures' in the game itself. I think the 'online publishing video' is the best indicator we have so far of what you can do..it features a stop-motion, accelerated video of 'creation' and it's pretty neat what they build out of a pretty simple base objects.
The Edge article also mentions that you'll have sophisticated per object 'rights management' over your content. So you can specify if people can take objects you've made from your levels and reuse them in their own. You could have a cool object you've made as a reward for finishing a level you made, for example. Having a system that allows people - with your permission - to take objects you've made and re-use them, or build upon them, is a pretty neat way of growing the 'pre-made' content base and allowing people to benefit from the skill of others in their own design.
This all still leaves questions, but I think we'll get a better idea of how things work at a lower level at E3. LBP seems to be a test-case in balancing freedom with accessibility, and imposing limitations where it makes sense. Even from what we've seen so far, you can see they've made some tough decisions, but ultimately good ones IMO.
edit - here's a link to that vid:
http://www.youtube.com/watch?v=sFMDNfxi4bg Pity I can't find it in high res..might be easier to see what they're actually doing via the Poppet interface. But you can see certain things like..asides from stickers it seems you can paint colour directly onto objects. For example, you can see them paint lava onto a volcano, and paint some text onto a block in another part.