I don't always use my "signature" lettering style (which resembles the great typeface Optima) on my ornaments; sometimes I find pre-existing letters or typefaces to copy.
I drafted my own letters on graph paper for these cross-stitch models, also for the bead-weaving ones below (which look especially gorgeous when the light shines through from behind).
Sometimes I used old type, either to print from (I apply paint to the type with a brush, then print the letter onto the fabric) or to emboss into Fimo clay.
Here are some ornaments using store-bought initials of various styles and materials.
Plastic letters, with two holes so you could sew them onto your baseball cap or something. I thought the holes looked tacky, so I affixed the letter to the background by wrapping it with thread and sewing through the fabric.