derivative work, something that its owners, Mattel, may consider an infringement. In practical terms, it seems pretty unlikely Mattel will pursue you simply for modifying the doll (and you may have a reasonable fair use argument). There are many "altered" Barbies and Mattel seems to have a "live and let live" approach to these plastic ladies (our altered entry is shown, above). In any case, the company hasn't had good luck pursuing arty derivative makers and seems to have accepted the fact that folks like to parody their cash "cow" (nay offense, B!).
What about trademarks? The company is more likely to object to the sale of the modified doll within the original packaging. That raises a trademark issue -- consumers are more likely to be confused -- and it implies that Mattel is the source of the derivative. When selling it on Etsy, you can mention that it is a modified Barbie doll but if you're really concerned about liability, include a disclaimer that the modified dolls are not endorsed by or associated with Mattel. That will make it more challenging for the company to claim consumers could be confused.