I'm posting this now so you can start for next year. It's cheap (about $1.50 plus shipping) and it's different every year, but you don't have to think of anything new. It does take some time--count on about a day or so for editing all your video to cut out all the nonsense, kids fighting, picking their noses, etc.--whatever you don't want to share with your grandparents. I've found this project gets me to get the video camera out more often than I otherwise might.
Of course get the important things: soccer games, dance recitals, school programs, birthdays. But it's also fun to include everyday stuff as well--I love the shots of my kids reading to each other or talking to themselves while they play alone. I have a great shot a couple years ago of my son singing while he was playing "chess" with himself ("Chess the Musical"). Sometimes you have to be sneaky so they don't notice they're being filmed. Last year I included an "I Spy" list with the video. "See if you can find: 5 different animals (wild and domestic), 3 birthday cakes, etc.)"
I take all my video through the year, then in December after we put the tree up I edit all the video down to about 1 1/2 to 2 hours (starting with last year's Christmas video and going through the year to putting up the tree or building a snowman or something Christmasy) and then borrow a VCR from a friend and make copies for all the grandparents. I always keep a copy for us as well so my kids can watch it--they love to watch the year they were born.
Maybe at some point I'll get advanced enough to put it on DVD's, but if you go this route make sure your grandparents have and know how to use their DVD player! :) If you don't have a video camera, you might try this: I had a sister-in-law make a DVD of still pictures they took throughout the year with music behind it which was also very nice. Not sure how she did it--I'm not that technologically advanced :). You could also do a CD with pictures on it. Again, make sure whoever you are sending it to knows what to do with it.
We live a long ways from our family and don't get to see them too often--especially the great grandparents, so this is our way of staying connected. Then grandma can see all the crazy things our kids did the last year, how they've grown, etc. while she's relaxing in the comfort of her rocking chair (or if she's like my mom she'll watch while she's on the treadmill). So if you're looking for a cheap gift that's sentimental and meaningful and your family is sure to love, bust out the video camera and get recording!