I loved the idea, and filed it away for the future. The first time I had the opportunity (Elijah's first Christmas, last year), I used it. It was a hit. This is a win-win situation for everybody: I save money (places like Snapfish offer 9-cent prints, and postcard stamps only cost $.27 instead of $.42) and the gift-givers get cute pictures to hang on the fridge!
As soon as I can after the holiday (birthday or Christmas), I chose a favorite photo and order several prints. Sometimes I use the same photo for everyone's postcards; other times I change it up. When I get the prints, I use a ruler to draw a vertical line down the center and a few address lines so it looks "official." (Sometimes printing places--Snapfish, for one--print a line of information on the back; when this happens, I just use dry white-out tape to cover it up, and it's barely noticeable. This time I got prints from CVS, and the backs were blank.)
I then write the thank-you note, trying not to press too hard so it doesn't leave marks on the photo side. Add a stamp, address it and stick it in the mail. Of course there's a chance that the picture will get damaged en route, but the ones I've seen have arrived unscathed. Here's one of the photos I used, and a picture of the back: