Free Prints! I took our christmas pictures myself, and got free 4x6 prints from Shutterfly and Walgreens. Keep your eye out for photo places offering free prints. Shutterfly.com seems to do free prints for new customers quite often. Even if you don't do free prints, you could order 4x6's online and pick them up at any photo center for free, and the prints themselves are usually very inexpensive (like .20 cents).
I felt a little silly sending out just two pictures in an envelope, and had christmas scrapbook paper already, so here is what I came up with.
I made this on the computer in Microsoft word. I knew that I wanted to make a sort of envelope type thing for the pictures, and decided to make it long and skinny, so I could get more bang for my buck with the scrapbook paper (I didn't have a whole lot). This is my tester sheet. I cut down the scrapbook paper to be printer paper size, and then printed directly on that. Some of the more loud prints the writing is a little hard to read, so I would recommend a lighter scrapbook paper color.
Tada! The final product. I just folded the paper to wrap around the pictures, and stuck a piece of tape on the back. For the ones I am hand delivering (I know, I may be taking this cheap thing a little far, but stamps are getting pricey too :) ), I tied a piece of ribbon around them, and just hole punched two little holes to thread it through.
If this is something you are interested in, I did a little research for ya. The only free prints deal I could find valid right now was from snapfish, which I have never used and only barely heard of. So make sure it's legit before you use it. Click Here for 150 free prints from them (again, make sure it is legit, etc. because I have no clue).
Also, here are links to coupons for craft stores where you can get scrapbook paper: