Ok so I've spent the past couple of weeks playing around with various cloth modifiers to try and get the effect on the bag that I'm happy with. I've ended up going with a mix between cloth modifier and key framing. The actual key framing on the bag here is pretty off, and the animation on the character isn't perfect either. This is mainly just a test to see if it all works.
I've also put in my first shot at a skybox, it bounces around like crazy at the beginning and I'm not sure why. Just needs some playing with and it should be fine.
I'm going to start actually working on the final thing next, started some rough modeling of the environment this morning.
The yellow and blue is a vestige of the 'game design' I have in mind. Basically the controls for the game would work with standard left right up down arrow keys/d-pad. As well as an over button and an under button which would be context sensitive. Yellow indicates over, or up movements, blue indicates under or down movements.