Later note, October 7, 2013: Mystery solved, thanks to a friend who loves research. This is apparently a bagworm, and you can read all about its life and habits here.
These little guys are all around our patio. The caterpillar is somehow making that case that you see hanging down. At this point, he is still able to crawl around, dragging his case behind him and looking for the best place to settle in for the upcoming colder weather. Eventually, he will seal up the end and think his caterpillar thoughts until he is ready to come back out for the big reveal.
I have no idea what he will turn into. Do you?
The completed case could easily be mistaken for a piece of wood a couple of inches long. Some even have very convincing "twigs" sticking out of them. Pretty amazing.