Friendship Doll: Google Image Result for http://www.cvmuseum.com/yarndoll.gif
There are so many fun things that can be done with yarn. Why not start with one of these Yarn Craft Ideas.
How to make Yard Dolls! These sweet little dolls are easy, frugal, and fun to make. Perfect craft for cold winter days!
Easy And Cute Doll | DIY & Crafts Tutorials
Octopus Yarn Doll.... I have made so many of these for gifts etc. They are easy and fun to make!
linen yarn doll Love this...I used to make yarn dolls like this as a kid (minus the braids). The boy ones had tied legs. The red trim is like tied straw christmas goats, very Swedish-looking even though I think the tutorial is in Russian...
How to Make Yarn Dolls
Baba Marta YARN DOLL . Made these in school for a fete.
Craft Stick Yarn Dolls by Happy Hooligans
How to Make a Yarn Doll: 9 Steps (with Pictures) - wikiHow. Nice pictures. Would work well for group activity or even self directed younger kids.