This holiday season, how concerned should I be about smart toys and their vulnerability to hacking?

You should be concerned both, that Internet connected toys can be hacked and also that they have shoddy privacy practices. And then the voice files of your kid talking to their teddy bear will end up in the cloud, accessible to all kinds of creepy people. On the other hand, Internet connected toys are great. Kids need to learn about technology. So, tradeoffs.