The paper describes hardware development for a small helicopter and a hardware-in-the-loop (HITL) simulator for flight control system and obstacle avoidance testing and validation. The proposed obstacle avoidance system (OAS) is briefly outlined. The HITL simulator is developed to closely mimic the behavior of the actual flight hardware so as to easily develop, debug, and test the flight control system on the ground thereby minimizing the mission risk. The helicopter in use is a small X-Cell gas turbine retrofitted to achieve high bandwidth control of the helicopter with the ultimate goal of achieving obstacle avoidance once the inner-loop flight control system is tested. The sensor utilized for rigid body attitude and position determination is a navigation-quality Inertial Mesurement Unit (IMU). A specialized dual processor board has been designed and developed for implementation of the control system and the obstacle avoidance algorithm. Furthermore, the HITL simulator includes the actual helicopter itself for purpose of driving the servos on the helicopter and a board for mimicking the IMU output. Preliminary control system designs and testing on the HITL simulator and the path-planning and obstacle avoidance algorithm (GODZILA) are presented in this paper.