ghosty, funnily enough at my 6 year old son's party yesterday, we did a pass the parcel with a present in every layer, making sure each of our six guests got one each. (kites, lego, pencil cases, clown wigs - all costing £1.00 each from our pound shop). It worked well. When my oldest son was 11 we did a raffle - each person got a raffle ticket, then when their number was called, could choose a prize from a tray of different stuff - blow up air guitars, bubble bath, torches ( more pound shop stuff).
Mind you, I am happy with party bags, mainly because I know live near shops selling cheap stuff to fill them. I put in lots of pencils and rubbers, plus a few sweets. As frogs said, party bags are great bribes for reluctant leavers. If my sons get a bag too full of crappy sweets,I tell them they must ration out the sweets, they hand me the bags, then I 'lose' some of the contents.
I wish a craft type idea would work for us, but I suspect it wouldn't. I really couldn't guarantee that either of my sons would want to spend time at a party making things, nice though it would be. What happens if you hold a party craft session and some children won't join in?