I'm putting together my kids' yearly photo albums on Shutterfly, and noticed that they have a neat new product: Children's picture books, with a place to put your kid's picture in them:

So cute and fairly cheap, too bad I'm already done shopping for my son. It reminded me that my parents once got a book customized for me as a kid - no custom pictures, but my name and my best friend's name were inserted into the book instead of the two main characters, and I adored it.
Another great custom product idea for kids are custom videos from Kideo.com. You send them a picture of your child's head and the pronunciation of his/her name, and they will insert the head onto a figure that is part of a video featuring Barney, Arthur, Dora or a few other popular kid's characters. I bought the Barney one for my then three-year-old nephew a few years ago, and it was a massive hit.