I used a cardboard jewelry box I saved from a while back. I hot glued the boxes together to create a backdrop and then painted the "scenery" with craft paints. Then, I made salt dough, formed some into a Hobbit-style house, "baked" it in the microwave, painted it and hot glued it inside the box. I used one toothpick, snapped in half and set in a couple of dabs of hot glue. Small children will need assistance hot gluing, but tacky glue could probably used as well. Then I added two tiny bits of fabric, folded over and glued to wire I strung from each toothpick "post" to create the clothesline. I guess I'm on a laundry kick lately.
I think this would be a great party craft activity. What child wouldn't want to take home their own handmade party favor? You can buy the jewelry boxes in bulk at supercenters and craft stores.