I decided to cheat a little and after I had saved my first ornament, I delted the image layer and saved the button part as another file.  I then used two more airbrushed images and just pasted them on that as a new layer.  I'm going to give you the text all at one time and then let you view the images below.

I ran into a problem with my tall cat, and that's when I first realized I had to make sure I had plenty of space around my image for it to work on my ornament.  So I went back and created a new blue image wide enough and pasted my tall cat on there.  Then it was the right fit.  If you look on my tree, you will see I did some creative beveling from here on out.  I tried different settings in PSP and I also did some bevels in Eyecandy.  You can experiment to get the looks you want.

Now I also had a very wide image with both the cats.  So I first clicked on the Deform tool and squished my blank button.  I then made sure to move it to the center of the 200x200 image.  You could come up with all kinds of variations on the ornament by playing with the deform tool.