Well, it depends on if you are doing 2d or 3d animation. I always recommend blender (
http://www.blender.org) to everyone, as its the whole shabang(3d modeling, animating, game making), and its free. Steep learning curve, but so easy once you've learned the interface. And its free
. I hear good things about anim8or but haven't used it.
For 2d I recommend Pencil 2d. It's like flash and allows you to make bitmap and vector animations. It also is free. You can scope it out at
http://www.les-stooges.org/pascal/pencil/index.php?id=Home. Another open source animator with neat functions, and would make for a unique environment is movie sandbox (
http://www.moviesandbox.com/. They've also developed a cheap 3d scanner(check out the milk scanner, its great). They've also developed real time lip syncing. Great stuff. I wish I had more time to experiment with it in GE.
Anyway, best of luck. Hope they work out for you.