Finished Product:
Step 1: Type it up
Select the Text Tool from the tool bar (or hit the letter T) and click on your canvas. I am using the font “Apple Casual” but the very common font ” Comic Sans” will also work just fine. Type the word Bubble or whatever you would like. Your canvas should look like this:
Step 2: Outline your text
With your text selected go to: Type > Create Outlines
Step 3: Give it some wiggle
Select each letter individually and rotate it slightly left or right to give the text a more organic look. Also make sure if possible to have each letter overlap just a bit with the letters on either side of it. You text should now look something like this:
Step 4: Merge Letter Shapes
With all of your letter shapes still selected got to go Object > Ungroup. Next go to Window > Pathfinder to open the pathfinder palette. Click on the button highlighted below to combine the letters into one solid shape then click the expand button to the right.
Step 5: Make it colorful
Next, with your shape still selected apply a gradient that you find pleasant. I think the effect works best with the light part on the top as if the light was coming from above. Also apply a 2 pixel white stroke to the shape. Your letters should now look something like this:
Step 6: Make it 3D
With your shape selected copy it by pressing Command+C then paste a copy directly behind the original by pressing Command+B. Next go to to the layers palette and turn off the top letters layer. Next select the still visible layer and make it a solid darker version of the colors you are working with. I have made mine a sold deep purple. Once you have the fill how you like it remove the white stroke.
Next, once again copy the letters by pressing Command+C and paste it behind using Command+B. Your new layer will be selected and using you arrow keys slide it to the left and bottom of the deep purple shape. Once in position adjust the colors to a lighter solid color then the one in front. It should look something like this:
Step 6: Get your blend on
With both words selected go to Object > Blend > Blend Options
When the blend options window pops up select smooth color and click ok.
Now that you have set the setting go ahead and make the blend by going to Object > Blend > Make
Your blend should look like this:
Step 7: Stroke it real good
Next select your blend with the black arrow and copy it (Command+C) and paste copy directly in front of it by pressing (Command+F). Now with that new copy still selected go to Object > Blend > Expand. 
With it still selected all of those layers of the blend by going to object > ungroup. Now press the combine shapes button in your pathfinder palette and click expand. Remove the the fill color and add a stroke of 4 pixels using the stroke palette. Using the button on the right align the path to the outside.
Step 9: Putting it all together
Now, in your layers palette make the original letter shapes visible and you are done! It should look like this.
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