there are cool websites like about.com and search for making own christmas ornaments and all sorts of craft ideas.
We let the kids do their own every year...
We do a candy cane (turn it into a reindeer with pipe cleaner, pom pom balls for nose (small) and googly eyes.
We have done sandpaper cut it into a christmas shape like a tree, angel, star...ect...and take a cinnamon stick (from spices) and scrap it on the sandpaper, use a hole puncher and put a hole in the top of the shape and run a string of yarn through long enough to make a hoop and to hang on the tree! Smells good and is very cool. (Can decorate if you like).
There are several other ideas like: taking a jar lid and a picture of your child and cutting the picture so it'd fit into the lid, put a hole in the lid, run wire or string through, decorate as you wish, if you wish and tadaa..you have an ornament.
you can search through marthastewart.com, familyfun.com, parenting.com, crayola.com, about.com, google.com...oh I can't think of the others right now...but good luck and have fun!!