In the Muppets make Puppets book there's a tutorial on how to make a very similar worm out of a regular kitchen sponge. Basically you just use scissors and kind of carve out the round worm shape and then shove a wire in each end. (It's a little more detailed than that, but that's basic idea.
I used that tutorial, but carved mine out of Foam. I've actually made two banana slugs that way. I'll try and get some pictures.
Grant