I love Image Chef! Easy to use, visually attractive site, great ideas! I used the Visual Poetry option to create the image of my baby in the heart. Image Chef has all kinds of great options in their catalog. I really like the capability of writing a message on a piece of toast! You could get a really high level of thinking out of kids if you pushed them. The symbolism that could be done is really cool. There are many opportunities for depth in putting text with images. Great point-of-view product, too.
The Happy Face Generator was fun, playful, and easy to use. I think kids would enjoy it. You could have them do ads for books they enjoyed or summarize a community problem using these tools. I can also see fun additions to newsletters being created here. (See my Happy Face Comic.)