Using puppets and teaching foreign languages go hand in hand in my opinion. I've seen the positive effects firsthand with my children and students.
In the past, I've used a puppet named Marisol, who only understood Spanish, to draw out the children. Even the most timid child would talk to her. Basically I would have her greet the children and ask them their names. Sometimes I would also have her play games such as Simón Dice and even sing some of the songs.
Another idea is to have the children make their own puppets - they could be as simple as ones made out of paperbags. They could either talk to their puppet in Spanish or have the puppets talk to each other.
I'll be posting more about puppets soon. It's one of my favorite subjects. *grin*