At the beginning of this summer, I taught a "Weaving Wonders" camp at my school. Kids entering grades K-4 could sign up. The camp took place from 10-12:30 each day. A different weaving technique was taught each day. Campers could sign up for any of the days or the entire week.
Weaving on Styrofoam was one of the projects. A restaurant supply store near our school had a huge package of styrofoam plates for very cheap. Slits were cut at the top and bottom of the styrofoam and string was placed in these slits for the loom. These looms were set up ahead of time, as a I figured the younger kids would have trouble setting them up. If the children were 3rd grade and older, I would have them set up the looms themselves. The campers chose a color of yarn and wove it straight across the loom (over, under, over, under). Because of the age of these campers, I had the students simply cut the yarn and only weave straight across. If the students were older, they could continue weaving the yarn back and forth. Suggest to the kids to choose a variety of colors and textures. I put out some colored wire, chenille stems, beads, feathers, ribbons and sticks. There are so many materials that can be incorporated into a weaving!
Where to obtain yarn: I don't think I have paid full price for any yarn for s in the 5 years I have been at this particular school. Hit up yard sales, church garage sales, thrift stores, Craigslist.org and Yahoo Freecycle groups. You will be amazed at what people will give away for free. Send out notes to your parents that you are always looking for bright, colorful, textured and snazzy yarn. I found that if I don't ask for "fancy, textured or bright colored" yarn, I receive a whole bunch of faded, dusty, gross yarn. By best yarn has come from members of my knitting group. Since I knit in my free time and belong to a knitting group, I have told the members that I would be interested in any of their scrap yarns and leftover skeins for my school. I suppose you could find a knitting group online (such as a local group that has a Yahoo group) and put out feelers for yarn for your school. If you offered a small price, I'm sure some of the members would be happy to sell you their leftovers or even donate them.