Okay, so the current Animal People are clearly not finished - Toady has mentioned that he probably intends to have randomised civilisations in the game which are not Tolkienesque (i.e the ones we have now) but are more random - quite possibly similar to the animal people. With this in mind:
It seems that there are approximately three levels of advancement in Dwarf Fortress:
Level 1 - Dwarves, Elves, Goblins, Humans, possibly some Night Creatures
Possesses the full gamut of what medieval civilisation has to offer, or at least being intelligent enough to do so were they not more concerned about murdering poor travellers who are out after dark.
Level 2 - Animal people
Basic tool-making abilities, i.e blowpipes, but not much more.
Level 3 - Normal animals
It seems to me that level 2 could do with pulling up a bit. I realise that this is probably intended for development in the future but there you go, that's what this forum is all about.
If animal people have the skills necessary to make weaponry like blowpipes then permanent (if small) settlements do not seem too outside the realm of possibility. Especially with the new army ark, the possibility of coexisting alongside/utterly destroying small native tribes of Animal People sounds pretty interesting. They would (in my conception at least) be off-map, and their motivations could range from trade to aggression to simply wanting to steal your stuff. You could trade with them (obviously they would need to be able to make things you actually wanted) or murder them and incur their wrath. Once we gain the ability to send out armies in Fortress mode you could crush them mercilessly if you were so inclined.
There's also the possibility of a bit more granularity here. Animal people civilisations could range from on the same level as or just a little below the Tolkienesque races all the way down to where they are now - nomadic hunter-gatherers with rudimentary tools.
Another interesting idea is the possibility that you might generate a world where all the level 1 civilisations are in fact animal people, and Dwarves, Elves and Humans are the ones living in tiny villages or under ground. This would probably be a worldgen setting, and would most likely require being able to play other races in fortress mode, so I don't expect it anytime soon. A compromise could be that Dwarves are always level 3, perhaps.
But all this raises other questions - if Animal people become more sentient, they shouldn't just be reskinned versions of humans. Different groups of animal people would have to behave distinctly differently, which requires some work. Just as an example, burrowing creatures should construct their houses just below the ground, others could build their villages around a monument. We could have houses on stilts, houses in trees (though ideally aesthetically different to Elves), nests (looking at you, Ant People), and more. Or combinations of the above. Ideally animal people would have skills/resources difficult to obtain elsewhere.
Thoughts?