I know I am cutting it close, but it is still this week, sort of :) Here is a look at how I made the little Theotokos figure. I also still have a few left in the shop for those of you who prefer NOT to do it yourself!
I started with a small wooden peg person, purchased from your local craft store, or from Casey's Wood Products. This one measures about 2 1/2 inches tall. Using acrylic blue paint (this was Anit*'s brand in royal blue), paint around her face.
Cut a rectangle of felt that measures roughly 1 1/2 inches by 3 inches. Peg people can vary in size, so it is best to cut out a paper rectangle first, and see if it will wrap around the peg person and meet in the back before cutting out your wool. I purchased wool from Wool Felt Central, but have also had luck finding a few select colors at my local craft shop. Using craft glue designed to work with fabric, glue the rectangle around your peg person. I add a bit of glue around the neck, and just gently press the wool down so it follows the curve of the figure. Trim any extra wool from the bottom of the figure so it will stand flat.
Using red wool felt, cut a rectangle measuring roughly 2 1/4 inches by 5 inches. Test the size, once you embroider you cannot trim this piece to fit. Curve the edges and blanket stitch around the edges. For instructions on how to do a blanket stitch, try this link. I used DMC floss color 3852, and the wool is "barnyard red." Place the first star in the middle, then try it on your peg person to determine where the other two stars should be to have them fall on her "shoulders."
Brush a small amount of glue on the top center front of the red felt, and press into place. The wool conforms nicely to the rounded shape with just a bit of manipulation.
Continue gluing the edge of the red wool down the figure.
Brush some glue down the back, and fold one edge of the red wool towards the center. Press and hold it in place until the glue sticks well.