Firstly, bless you for thinking of this. My mother in law would never in ten million fits think of working with my children to make something for me!
My kids are about that age and will make ornaments for each tree in our extended family this year, as their gift to all the adults. (I beleive in unconditional love for children, but I also believe they should learn early to think that the person who loves them would also love to receive something!!!)
They are very keen to work with styrofoam shapes. I have bought a few cones to experiment with. I am thinking to just glue on layers of different greens, starting with darks at the bottom and working towards the topand then letting them go wild sticking (or maybe pinning) on sequins, little strongs of seed beads, etc, Hopefully this will end up looking something like a Christmas tree!!
We'll try something with styrofoam balls too.
If you are really adventuroius, I think you can get wreath shapes!
We have had great times in previous years with salt dough. Just roll it out and use your Christmas cutters to make nice shapes, bake, and paint! (Dont forget to make the hole to hang the ornament +before+ you bake it- they are like rocks when they dry)