Instead of exchanging gifts with my side of the family, we've been doing an ornament exchange for years. We include my parents, my siblings and all of our children in it. We all love it and the kids are developing quite a collection of ornaments for their future trees. My brother lives out west and isn't always in town for the holidays, but his family sends their ornaments to us so they can be included.
We do it similar to the way Scarlett described. It's funny what everyone wants to steal. One year it was a Barney ornament that kept getting stolen. Sometimes we have themes for the ornaments and sometimes not. The Barney year was TV shows. Other themes have been homemade (that brought some interesting things from the guys in the family!), country, pop culture, etc.
We will also steal from each other throughout the evening that we get together. So if you really like the ornament you have, you carry it with you the whole night, or it may disappear and another is in its place.