For my Christmas character Cup Cakes I have simply used a vanilla sponge base with glace icing covering and fondant icing to create my characters. If you want to use fondant icing to cover the cake you could use a scalloped-edge cookie cutter, to give them a festive, wavy edge. Brush melted jam (apricot usually) onto the top of each cake and lay an icing circle on top.
Some webites I have enjoyed looking at are:
This site have very easily laid out ideas for Christmas cup cake decorating. Remember it is a great rainy day activity for children during the holidays...
This site has some snowball ideas for decorating, but lower down the page has a more unique idea of adding a selection of fruit and nuts onto the top of each cupcake such as walnuts, glace cherries in different colours, almonds, stem ginger,soft pieces of dates and prunes and cashews. They also suggest a layer of marzipan on top before the decoration; I different twist I think.
Enjoy the Christmas preparations!