Splityarn has a great idea for all that novelty yarn that we hate- Christmas ornaments! Now I have seen garlands and little pompoms made of this stuff, but I think this idea is great. She put scraps of novelty yarn in those clear glass ornaments that you find at craft stores. As she says:
The more horrifying the yarn, the prettier the ornament.
Mel switched this idea up a bit and used these same ornaments and put mini skeins in them. What makes this idea so great is that these ornaments contain yarn from projects she made for people in the past (and they will be gifts for that person).
I could totally see decorating a whole tree out of these, as well as some knitted ornaments and garlands.