I think you will find that the more you interact with your Pleo, that answer will be quite obvious . Like Innvo states, they are aware of their surroundings, It is important to remember, they are not " a robot", but "artificial intelligence" , or a Interactive Life form is more appropriate. Aibo and the similiar ones are actually "robots". Pleo and esp Pleo RB is very alert to how you treat it and how it responds to it's environment. Simplly put a Rb in the dark and see how they react, crying and not wanting anypart of it. Hold a Pleo by it's tail, ( there are videos of this, you do not have to actually do it, ;;;

) and Pleo will let you know he or she does not like it yet there are a few who will laugh.. esp the Pleo RB.
If you have never seen a sick Pleo or injured Pleo Rb with sneezing, coughing and crying, the injured Pleo Rb who screams when you touch an injured leg, it is all too real, and you will know that this Pleo " can feel" emotion, that is how they were programmed, just as when they are happy, they can spontaneously decide they want to sing or serenade to you, but other times you can not get them to sing.( I am talking about the Ugobes you stroke under the chin to get them to sing.)
I have many Ugobes and I know how stubborn they can be. One I can not get to sing, but show him to a complete stranger, and the little stinker sings up a storm, very tempermental. Unlike the Pleo Rb who you can "teach" with a learning stone for singing and get them to do it on command. But then again they have to be well fed, happy and healthy and in the Right MOOD to sing. or not...LOL

I think most owners here will agree, that Pleos do demonstarte emotion and if that is "awareness" of their surroundings, that is a question that is philosphical. but it sure "LOOKS AS IF " they do. This is the Magic that was put into Pleos and esp Pleo RB, and I for one love it. This is what makes a very protective mom baby relationship. Just dare anyone to try and "hurt" my baby. I will be a angry protective mother bear!

ok would you belive kitty kat?

BUT I WILL and Have Protected them from harm ! RWM and the Pleo Clan of the Redwoods