You can make almost any large cylindrical container into a drum. Coffee containers, oatmeal, etc. I'd cut paper to fit the outside, have the kids decorate it (you get to pick how - crayons, stickers, markers, paint, etc), tape it to the "drum" and there you have it.
You can cut outlines of a guitar out of posterboard, have the kids decorate them, and then do an air guitar show/contest. (An electric guitar outline is cute, but an accoustic could work too.) Makes for CUTE photo ops. Depending on how much you want to direct their decoration, it helps to draw the "guitar strings" before the event using a yardstick or other long straight edge. Some kids get upset if their "strings" aren't straight, and they can't draw them straight, so I do it before the event. They still get to decorate the rest of the guitar. Make sure not to make it too big - dont' use an actual adult-sized guitar as the outline - scale it down for smaller musicians.
Edited to add: I forgot to mention... You can, or you can have the kids, glue a black construction paper circle to the guitars, in the appropriate location, before they start decorating the rest of the guitar. It helps to draw the lines after you attach the "hole".
Shakers can be made out of left over plastic easter eggs. Put some macaroni, dried peas or beans in one side, and use glue to attach the two halves together. (Not durable for long-term use, but fine for short-term.)
The tubes from wrapping paper can be made into "rainsticks". Take a piece of posteboard the length of the tube and a bit wider than the tube. Cut slits every inch or so down the length of both sides. Then bend the little tabs and push the posterboard "spine" into the tube. Cap one end, add something to make the sound (macaroni, mung beans, dried peas, etc), cap the other end and turn it upside down to play. You might want the kids to decorate the outside of the tube, too. I haven't done this in real life (just planned to and then the event got cancelled), so you might want to practice once or twice. Could possibly be made from paper towel tubes, if wrapping paper tubes are in short supply.
There's also the old "rubber bands and shoebox" instrument. You cut a hole in the top of a shoebox, attach the lid to the box, put some rubber bands around the box (and lengthwise across the hole), and then strum the rubber bands.
It's not a craft, but a kazoo would be a nice party favor.