You need to make the character act at all first (step 1), before
taking step 5.
Emotions can be implemented visually, by making facial
animations / animated textures.
There was an old contest entry with an animated head.
http://www.opserver.de/coni_users/web_users/pirvu/au/demo/zips/bones.zipMaking the eyes focus the player is also a big part
of making a character more lively.
But first think about tha basics.
(making an expressive model, and make the model be able to act in
the game at all)