Thats the best thing to do and in time I imagine he will do it less and less since he no longer hears it but they can be annoying when they repeat a sound like that, it will be replaced with new sounds he likes to mimic.
Dan's suggestion to file his talons down is a good one and maybe if you start when he is young he may be more accepting of it, I wish I had started Josey off with doing that and it also helps to have several rough perches in his cage placed strategically where he is likely to use them, next to food and water bowls.
The puppy toy may have reminded him of the dogs the breeder had.