I'm in a crafty mood and saw your post -
Chocolate covered pretzels
One thing we made last year that was a big hit was chocolate covered pretzels. We bought a chunk of Godiva chocolate ($5) and a large pretzel tub ($7.99), both from Sams Club (like a Cosco). We melted the chocolate pieces in the microwave, stirring as you go to melt it. Dip each pretzel in the chocolate. Dry on wax paper on a cookie sheet or smooth counter. Once dry, we took a baggie, cut off the top and placed the pretzels in the baggie (once they dried on a cookie sheet). Then, wrapped the baggie with a pretty organza ribbon and a handmade tag (you could use a $1 pak of cards from Michaels and fold them in half, or cut out a piece from each card and punch a hole to make a smaller tag). Everyone loved them! It was a little messy with the chocolate while drying, but really fun for the kids to do. (and my DH is 16 now and still loved doing this - go figure
(edited - I meant DD not DH...although he acts like a 16 yo sometimes...LOL)
Decoupage photo receipe box
One year I made a receipe box for my sister. It was soooo neat. I used decoupage glue from Michaels, a $5 unfinished receipe box. Paint the box a solid color. (I used a muted country blue). Then, xerox or print from your printer black and white (or sepia toned) photos from when you were kids, or special times together, whatever. I had photos of when we were little with Daddy & Mommy, babies, barbequeing with family, etc. I painted the decoupage glue onto the back of the photos and laid them on to the box, smoothing with my fingers. Then when they're dried, I painted a layer of decoupage glue over the entire thing. Then I took a permanent marker and outlined stitching around the edges of each photo. It turned out so awesome & it was soooo easy. You could do this with hat boxes or cigar boxes or any old box. Even the $1 boxes in the Michael's cheapie section - you could paint over those.
Cinnamon dough ornaments?
A variation on these would be go decoupage a photo to the front, yet leave the back unfinished so the smell comes through. You could use a star cookie cutter and then trace it onto the photo, just cutting slightly smaller than the ornament outline so it fits 'inside' the perimeter of the 'cookie'. You could outline with a permanent marker or with beads, ribbon, etc.
Felt quilt or ornament
A friend of mine is "all-about-cheap" (she's on a budget - saved $15,000 for a down on a house being a saver) and makes the neatest crafts. One year she made me a felt quilt wall hanging. I think it cost all about $5 LOL, but it was sooo pretty. Perhaps you could play on this theme and have the kids cut out shapes from clip art and glue to a backing to create a small quilt for a gift? If that's too hard, you could cut out a shape from 2 pieces of felt laid on top of each other and glue edges together, keeping the top open to hold a little candy or cinnamon sticks, glue on a ribbon for hanging, a few buttons to the front and you have an ornament.
Hope these help I'll post more when I think of them...