Wonce and a while when my dog (west Highland Terrier) is playing with his stuffed toy he does this. First he gets a good grip, stays still and starts moving his front paws up and down until I call him. Does it matter or is it just a habbit?

He wants to play. He wants you to try to get the toy away from him. That's a happy dance.

I agree this is just him playing, he is pretending to kill something;) (From your description though, it kind of sounds like he's raping the toy haha!) Maybe you should think about neutering him.