Purchase small terra cotta pots and have small squares of Christmas fabric cut up. They would paint pots with watered down Elmer's glue and cover pots with fabric.
Or, make picture frames using the same technique. I would cut 5" x 7" pieces of cardboard and trace a "frame line". They would cover the frame with the fabric and picture would be glued in the middle using the same technique listed above.
Or, a really nice project would be to cut out wreaths and use fabric to cover surface. (same idea glue and pieces of fabric). At the Dollar Store, buy ribbons to make bows.
Let us know what you decide.