Ikea do battery operated fairy lights that don't get hot, both my DD's have them as night lights. They also do those nice canopy things that hang from the ceiling. I got DD some nice fairy wall plaques off e-bay. If you got some netting could you use drawing pins to drape it from the ceiling to make the room look more like a cave? I'm always a bit worried about dust with things like that though.
Well, you could have... - grey curtains with fabric painted dark grey lines on to make them look like cracked stones with pink fake fur or sequin trim to hint at the inside of the cave - or pink netting with sequins on (buy cheap net curtains and dye them pink and add the sequins) - or beaded curtain type things, but with jewels rather than beads.
Why not ask the girls to draw the entrance to an imaginary fairy dragon cave, so they can only just see in and see what they come up with as ideas? I imagine if they're young enough to want such a room, they're young enough to like drawing.
Bear in mind, try to use curtain materials with fire retardant properties.