I originally got this idea from this site: http://www.coolest-homemade-costumes.com/peanut-costume.html but thought it could be done a little better and with more explanation.
I started using garden wire for the frame. You can pick this up at any big box home improvement store. I used 4' x 50', and used probably 30' worth. The costume is made in three separate parts: body, head and hat. I made a prototype for each section so I could get the width and proportions correct. Then, after making sure I could get it on (and get through the door), I made the final versions. This is important, because you don't want to build your costume and then not be able to get it on or get it out of the basement. Don't forget to cut arm holes in the head before you attach it to the body. Really, your arms come more out of the head then the body. The holes are right on the connection line.
As for the covering, it's paper mache. I used 1 part water to 1 part flour and it worked great. Don't waste your money on glue or paste. I ended up using about 2 pounds of flour though, so be prepared. Also, fans or even small space heaters will greatly speed up the drying process. Otherwise a single coat could take 2 days to dry. The newspaper was torn into 2"-3" strips, run through the batter and laid flat. Try to lay it as flat as possible so you don't have to sand or trim it later. Then spray paint it yellow and black. Apply the face and you're done. I cut the face out of tag board and colored it black with a Sharpie. Also, I used two duffel bag straps on the inside so it really "hung" on me. This is recommended versus letting the frame rest on your shoulders (ouch!).
The outfit was mostly Good Will. If you can't find spats (I couldn't), use white tube socks with the ends cut out and just pull them over some black dress shoes. The rest is just black pants, black shirt and white gloves. And don't forget the cane! I used a bamboo one from a costume store ($2) and painted it black. Also, don't forget the eye holes. I cut three small holes just below the brim. This worked perfectly. I had planned on using some type of sheer material, but this would have made it hard to see at the bar since it was kind of dark already.
This costume was a big hit. Of course it won first place at the party we were at. In the end, it took about 40 hours over 2 weeks and cost only $35 to make. I'd recommend starting earlier than I did. I spent a lot of late nights finishing up. But it was definitely worth it! Now it sits in my party room as a reminder of the best Halloween costume ever!