We did away with the gift exchange all together on my side of the family. It was too complicated. It's so hard to buy a gift for adults (and kids usually get enough stuff from their parents and grandparents as it is. TOO many toys overwhelm them). It's hard enough to know what to get my husband, and I know him very well! I was SOOO relieved when my mom suggested stopping our gift exchange. Most of it turns into clutter for the person receiving it because it's not really something they'll use or like anyways. We still get my parents presents and vice versa, but not my siblings and spouses or neices/nephews.
It is so hard and stressful to buy for my husband's side of the family so we finally opted out. We didn't try to change the way they do it; we just chose not to be involved. I want to enjoy my holidays, and this made it easier for me. So my husband just said, "For me and Tif, we'd rather not be a part of a gift exchange. Please don't get anything for us. The kids get plenty of presents from us and you don't need to get them anything, but if you want to go ahead." My father-in-law is single and seemed pretty relieved not to have to worry about presents.
One idea at an annual Christmas party my aunt throws is that everyone who wants to be a part of the gift exchange brings something (you don't have to participate if you don't want to, and there's a price limit) and we do a fun game out of the exchange. We each take a turn either opening a wrapped present from the pile or exchanging a wrapped present with someone else who has already opened a present you like. A present can only change hands 2 or 3 times and then that person gets to keep it. It's gets kinda playful with people trying to go after a popular item (a tub of licorice always is a hit at our party for old and young alike). Here's a link to a really cute Right/Left gift exchange game we did last year. You're bound to mess up and it gets everyone laughing as you try to hand the gift the correct direction: http://www.santalady.com/xmasgame/lftrt.html