I got this idea when I supply taught at a preschool recently and I thought I'd try it out with my daughter. I told my 3 yr old that we're making name art. The steps were:
1. Trace name
2. Cut out paper following dotted lines
3. Glue onto a big sheet of paper in the way that he/she likes
I found that this was a great way to get her to work on some fine motor skills. I'd like to enter this into the Sunday Showcase over at Mom to 2 Posh Lil Divas, where you'll have an endless list of other literacy/writing activities for the little ones.