Here is a sampling of the Christmas Gift Bags that I made this year ... the rest of them are with their recipients. I purchased a truck load (okay, not really that much) of fabric from Walmart (a flea market would have been even better -- next year) and proceeded to give all of our gifts in the bags I made from it. Just like paper towels and wipes -- if you don't buy wrapping paper, you won't use it!
I also purchased ribbon and some rick-rack, both of which I stitched to the bags.
I had the felt left over from other projects. Felt is great because it wont fray -- just cut into any fun shape and stitch on the fabric! A hot glue gun would also work, but hot glue and fabric can get tricky.