Morphing is a feature that comes up regularly on a variety of forums and e-mail lists, and this post summarizes a few recent threads. The grandaddy of 2D morphing programs was Elastic Reality, which was discontinued by Avid in 1999. ER might still work in Windows, but more advanced morphing features later showed up in Avid Media Illusion, Avid|DS, Softimage|XSI.
There were a large number of morphing apps created after this effect became popular. Free ones include WinMorph (Windows) and MorphX (Mac), and there's many more but mostly for morphing between stills. There's even a Final Cut Studio plug-in called Morphing FX from CHV-electronics, but it's currently only working in Motion 2+, since the current version of Final Cut Pro does not fully comply to Apple's FxPlug spec.
After Effects has several tools to to do different types of morphs. The main tool is the Reshape filter, but there's also basic mask/text/Shape interpolation, the Mesh Warp filter, and even AE 8's new puppet tool tool which might come in handy. If you're doing text/mask interpolation don't forget adjustable Smart Mask Interpolation and the Set First Vertex command. Chris Zwar did a tutorial for Creative Cow in an earlier version of AE that describes the process using the Reshape filter, which is also covered in books by Trish & Chris Meyer and Mark Christiansen.
Yet another option within AE is a third-party filter RevisionFX Re:Flex that has some more advanced features and perhaps better quality.
I haven't been paying attention lately but the last morphing I remember was in a Rolling Stones video; it seemed to involve 3D moves and frame rate interpolation too, which itself should work better now with optical flow now in common products by Adobe and Apple. Even then Effects Fueled by the Desire to be Seamless (FxGuide) is a lot more complicated now.
Update: Chris Meyer summarized the essentials on 2d text morphing on the AE-List (30 Sep 2007):
"As you noted, we wrote up a few pages on it in Creating Motion Graphics Volume 2 (for those with copies, in the 3rd edition, its pages 82-85; in the new 1-volume 4th edition, it will be pages 180-183). It comes with several example exercises. Here's a quick boil-down:
- Align the First Vertex Point at a similar position on the two shapes, and enable First Verticies Match
- Use Linear Vertex Paths: disabling gives more organic interpolation (especially good for rotating objects), although it can also result in wild swings; enabling will be less twisty
- Bending Resistance: low = more fluid; higher = maintain a more rigid, geometric shape
- Matching Method: Auto works well; use Curve for organic, Polyline for geometric
- Add Mask Vertices: the higher, the more accurate the interpolation; same for Quality
- Use 1:1 Vertex: disable.
There's no one magic setting; just these general rules for stiff/fluid, and experiment/tweak from there."
Chris Roger adds: "Start with simple text morph of the letter "A" to "B" to learn. Create text/outlines in IL and paste into mask keyframes. Make sure the letters have same number of points. Add points with Pen Tool. This will help a more fluid transition. Be sure to define the First Vertex."