yuppers, machine embroidery
I create the vectors, and then digitize it in the embroidery software, plug in my embroidery machine, and awaaaaaaaay we go
Before Santa brought my embroidery machine, I was using acrylic paints (with fabric medium). It was a heck of a lot faster than hand embroidery. I don't have that kind of patience!
Poke around deviantart a bit--there are some great tutorials on hand embroidery and applique for pony plush.