I've refined the approach over the last few years to try and simplify, and the approach now seems ideal. At first, it was all installed software - Movable Type on the server for the letter, and a PHP-based app called Gallery for the photos. Today, it's much easier: Blogger for the letter, and Picasaweb for the photos. Here's what we do:
- Set up a subdomain at the domain we use for family stuff on the web, then create a blog on Blogger and use Blogger's free Custom Domain feature to point to the subdomain. (Note: you don't need this step, you could just use a free blogspot.com URL... I just like keeping things on my family domain.)
- In the past, I'd hunt for a third party Blogger template that was suitably holiday-oriented, but with the new Template Designer, it took a matter of minutes to find a beautiful design that required no extra work.
- Fire up Picasa on my Mac, copy photos from the year into a "year in review" album. When finished, enable "sync" on the album so that the images copy up to Picasaweb, and visit Picasaweb to view the album on the web. Click "link to this album", then "embed slideshow", and copy that code into an HTML/CSS gadget in Blogger - now I've got the year in review slideshow running in the right margin of my blog. Update: Shameela on the Blogger team reminded me that there's a Picasa gadget in Blogger - no copy/pasting of embed codes to worry about. Duh!
Another advantage of each of the prior years being online is that I can point to the earlier years - new friends can see what we were up to in years past, and family who want to reminisce and look at images from the last several years can do so. All told, each year averages 75-100 pictures - our kids love looking at each year's collection of pictures!