After I figured Nuke out- I went back to tweak my animation and lighting.

I did some more research on lighting and I set my Main light to quadratic decay, used some ray traced shadows, applied some mental ray textures, and also turned on Final gathering, to make my character fit in with the scene better.

I also tweaked the timing of my animation, and made the tail swish smoother. Mostly I wanted to fix the characters reactions, and add a bounce.

Overall I was quite pleased with the results.