With all the fabulous hybrid template out there you could always make each child a box to take a cupcake or two home in that is personalized with their name - Hannah's Bakery, etc. What dad or sibling wouldn't love to get a cupcake for desert?
Also, what about having them decorate aprons before they decorate their cupcakes? I think having them do a few cupcakes would be more fun for them. You could put out ideas and then have a contest - best animal cupcake, best monster, neatest, etc. You could have your daughter help you make awards for the contest using paper scrapbooking supplies. I know that Family Circle and Better Home and Gardens have articles on their websites with cupcake decoration ideas. Last year I made doggie cupcakes for my daughter's birthday using cookies and chocolate chips.
If you wanted to play games you could convert most party games to a baking themed game pretty easy by using baking supplies. Have fun! It sounds like a fun party.