Here's my #2, I made this out of another old shirt from high school. Wrap the headband with fabric as seen in #1.
Now we are going to make a fluffy fabric flower. Cut out circles out of your fabric of choice. I needed about 9 circles to make my flower. First I glued (with just a tiny drop of hot glue) two flowers together. Next I folded three circles length ways and place them over each other to make a triangle in the middle (this is hard to explain, but you can kinda see in the third pic). Next fold each circle 3 times and do for of these. Glue the four folded circles to top of flower and add your button of choice.
... and there you go, beautiful, simple new headband!