I'll add as I think of more:

1. Bean bags - use scraps of fabric and dry beans, rice, or even beads.  I've used clear platic cut from an old closet hanging shoe-storage unit to make clear sections - e.g. a brown fabric ice cream cone w/clear top, a square bea bag w/ a heart cut out of the middle and the clear inserted.  Haven't had any problems using a sewing machine for this.

2. Pound nails into a small sanded board in a pattern.  Give with a number of multicolored rubber bands.  Kids will make patterns with the rubber bands.

3. For little ones - chunky crayons - if you have broken crayons, melt them in the bottom of sprayed cupcake tins.  Watch - if you leave them too long, the colors will run together completely.  Otherwise, this makes a "cake" of color that small children can hold easily.

4. With some basic tools and scrap wood - make wooden blocks.

5. Accessories for their rooms - a sign with their name, colorful braided rug, throw pillow in a favorite color or with favorite motifs.

This xmas I am making a barbie house for dd. I found a 3 shelf bookshelf at a garage sale for $5 and ech shelf will be a room. I've got some contact paper I'll use for wallpaper and then I'll paint on doors and windows. To top it off I found some wood furniture at the dollar store that is the right size. So for under $10 she's going to have a barbie house. I saw a flimsy version at Walmart for $35!!

You Gals are sure Creative, really good ideas here!

You can make a special personalized gift basket if it's a very young kid you are making the gift to. There are several cheap personalized things for babies that you can put in. These are my suggestions: a personalized T-shirt, a personalized baby plate, a personalized ABC book, a personalized numbers book and a personalized baby mug. All these things are cheaply available. And if you are really on a budget, just put one of these things into the gift basket, and add a lot of other inexpensive things that babies can eat, such as chocolates (not too many of them though ), cookies, etc. It will still qualify as a personalized baby gift basket. You can also pick up some cheap toys from Wal-Mart and put them into the basket.