rebecca - I did not use kool-aid, I used a gel food-coloring type dye that's normally used to color icing for fancy cakes. The brand is Wilton's and I got it at Michael's (a chain hobby/craft store). I chose the cake dyes over kool-aid because there were more color choices and I read that the colors turned out more intense.
feministmama - I didn't really "paint". I mixed a little of the dye gel with water in plastic cups, and then I basically just poured one color on one part of the yarn and smooshed it around until most of it was absorbed, then poured on the next color etc. The colors ran together more than I wanted in some places, so next time I might try a different method.
Thanks everyone for the compliments. I haven't quite decided what to do with these vivid yarns yet - I'd appreciate any ideas anyone has!!