For toddlers, process-oriented crafts are better than results-oriented crafts (in other words, it's okay if the craft doesn't turn out looking like anything in particular). MaryAnn Kohl is great at this. Another book is Dribble-Drabble Art (I forget the author and age range -- sorry).
The woman who wrote the Anti-Coloring Books has a book for younger children entitled Young at Art, which is a great guide to exploring art with young children. She covers what stages children go through in developing artistic ability and what you can do to support them.
There are also lots of arts and crafts websites...some results-oriented, some process-oriented. You might have fun trying a search on something like "toddler crafts " and see what turns up.