I love the pillowcase idea because I have a seven year old and I know the thrill of making it - then SLEEPING with it!!!

You could also make a little tote with her...I made both of my daughters totes for taking clothes and toys to visit Nana and Papa. They like to fill them up with random things to take on shopping days or to the restraunt. Lol*
Another thought - my daughters used transferable fabric crayons to make a t-shirt for my Husband one year. That would be fun, she could draw a picture then put it on a tote or something like that.