IN THE PENNY ARCADE; Stories by Steven Millhauser. Knopf. 164 pp. $14.95.

THE DOMINANT IMAGE in this short-story collection is the mechanical toy. "Cathay," a series of fabulous vignettes set in imperial China, begins with a long paragraph about artificial birds. So sweetly do the birds sing and so naturally do they move that only their golden forms keep them from being taken for real.

The title story features a narrator's taking leave of his boyhood in a shabby carnival arcade stocked with mechanical cowboys, dancers, and fortune-tellers, all animated by coins. Seeing other children mock the deteriorating figures, the narrator realizes that he, too, is on the verge of losing his sense of wonder. "I recognized that I myself had become part of the conspiracy of dullness," he muses, "and that only in a moment of lavish awareness, which had left me confused and exhausted, had I seen truly. The figures had not betrayed me: I had betrayed them. I saw that I was in danger of becoming ordinary, and I understood that from now on I would have to be vigilant."

"August Eschenburg," the longest story (it comprises more than a third of the book), chronicles the life and times of a toymaker so skilled he can make a mechanical figure that not only writes legible copy but corrects its own mistake. (It's always the same mistake and the same correction, but still . . .) After scoring a series of triumphs in the medium of the department-store window, he falls out of favor by refusing to prostitute his art. Across the street a rival has been fashioning and installing lewd figures in his store window -- a stratagem Eschenburg disdains. Later he loses the backing necessary to support a theater devoted to his productions because he will not traffic in the bawdy buffoonery his audience -- and his backer -- demands. At the end he is left alone, somewhat like Charlie Chaplin's Tramp, with his integrity.

What are we to make of all this clockwork craftsmanship? It points toward a profound loneliness, crystallizing in a fascination with facsimile humans in lieu of the real things. "You're not much of a friend," Eschenburg's disgruntled backer complains. "There's something cold about you . . ." The boy in the penny arcade notices and feels superior to the cynical children also on the premises but interacts only with the mechanical adults.

THE SENSE of being cut off from other people recurs in the "non- mechanical" stories as well. In "Sledding Party" a young woman is so perturbed by a male friend's abrupt declaration of love that she spends most of the evening brooding under a fir tree while the others gambol in the snow or dance inside the house. In "A Protest Against the Sun," the story of a family's afternoon at the beach, another young woman finds herself hard-put o explain her exultation in the day's radiant perfection to her witty but emotionally stiff father. In "A Day in the Country," a woman entering early middle age rounds out her solitary stay at a country inn with a crying jag and close brush with suicide. Encounters with other people are generally brief in these stories, conversations fleeting. The effect is rather like that of walking alone through a museum in a town where you don't know a soul.

Fourteen years ago Steven Millhauser published a brilliant, Nabokovian first novel, Edwin Mullhouse: The Life and Death of an American Writer, 1943-54, the pseudobiography of a literary child progidy. Since then he has produced another novel, Portrait of a Romantic, and this collection of stories. These are quite good stories, but, churlish to say, I expected better -- or at least less traditional -- ones.

Edwin Mullhouse seemed to herald the arrival of a fully-forged novelist who had so mastered the genre's conventions that he could rework them into tragicomic tours de force. In the Penny Arcade merely reveals a skilled writer polishing up variations of less than dazzing originality on a single theme. Nothing wrong in that -- unless it be the inevitable letdown after a writer breaks a few icons (e.g., the novelist as precious prophet) and then doesn't see any more he feels up to attacking.

In the Penny Arcade may not be a burst of literary pyrotechnics, but it is a showcase of style and grace. I especially like, in "A Protest Against the Sun," the description of a young madman stomping along the beach: "His black eyes looked as if a black bottle had exploded inside him and flung two sharp pieces of glass into his eyeholes." And a sentence from "Snowmen" captures the astonishment one feels on waking up to find deep drifts already in place: "It had happened secretly, in the night. It had snowed with such abandon, such fervor, such furious delight, that I could not understand how that wildness of snowing had failed to wake me with its white roar." Passages like these do much to compensate for the stories' failure to match the spirit of a head-turning literary debut.