You would need to create (or commission someone to create for you) a custom rigged mesh in the desired overall shape of the creature. You would wear this mesh as an attachment while simultaneously wearing an alpha mask layer to hide the default system avatar base. Rigged meshes can be imported with scale offsets to make them appear larger or smaller than the avatar wearing it (I'm not familiar with the exact process). Though it's worth pointing out that most avatars are oversized already - as the height indicator in the viewer reports incorrect information and LSL scripts that can measure agent size only give the bounding box up to eye level. When in doubt, measure yourself by standing next to a prim and noting the prim's size in meters.
Constantly floating above the ground can be accomplished by a generic animation override. You could simply replace standing/walking/running/etc with flying/hovering animations. This can be combined with adjusting your avatar's hover-height attribute to further offset you vertically from the ground.
Coloring the surfaces of your mesh black and turning it full-bright would remove any lighting/shading, though I don't think it'll look particularly nice. You'd stick out quite a bit in an otherwise shaded scene. Worn particle emitters with appropriately textured particles can accomplish the smoking effect.
The most involved part would likely be rigging the extra arms/tentacles and making the animations to go with them. Since you're creating a non-standard avatar shape with two extra sets of arm limbs, you'll need to create animations specifically for that. The avatar's skeleton is now augmented to include bones for wings and an extra set of hind legs (like a centaur), so those are an option. You'll need to have idle animations for them as well as animations any specific action action you want them to do - such as whipping out. Controlling them would be possible via a custom HUD to trigger the appropriate animations for each limb.
Be aware that when reusing skeleton bones, you will probably want to avoid other products that animate those same bones in other ways - as they will not take your avatar's usage of them into account. Things that animate your original arms would follow the more ridged bone structure, but you might be able to counteract that by weighting the arm rigs to be less bound to the arm bones - and as such making the arms appear more flexible. I haven't done any rigging yet, so I cannot say for sure - that's just my speculation.