I used cotton yarn for this hat (Sugar 'n Cream).

• CO 70 stitches on size 6 double pointed needles and join into round without twisting stitches. 
• Knit in garter stitch until you reach your desired length (approximately seven inches).  **Note that while I used garter stitch for my hat, I think stockinette would be awfully cute... If you do choose to go with stockinette, add maybe another inch or so to the length because the bottom edge of the hat will roll up. 
• Divide stitches evenly onto two needles.  Bind off using a three needle bind off.  **If you did you hat in stockinette stitch, turn the hat inside out before binding off.

You'll wind up with a simple rectangular shaped hat - once you put it on a baby's head (or in this case, a stuffed bear's head) the two top edges poke up like little ears.  It's totally silly looking and really quite cute.  I didn't do anything extra to the one in the picture, but I bet this hat would be even cuter with a pom-pom attached to each top corner. 

Helpful Hints: 

Garter stitch in the round = alternate knit and purl rounds

Stockinette stitch in the round = knit every round

Three Needle Bind Off   (a great how-to video from KnittingHelp.com)