Lauren,
You have to cover what the cost of those lost prints cost you plus your editing time to get every picture print ready. $500 would probably be too steep in my very rural area, but I bet it is a comparable price for your area. Don't let the cheapskate discourage you. One idea however, you might offer a low resolution (very low res) cd of both edited and non-edited images. That way, parents can e-mail them to grandparents to view or put them on their myspace, facebook, etc. Also, you might sell more prints if you do that, because later they will change their mind about what was there favorite photo, especially if they are viewing them a lot.
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~Leona~
Capturing Moments In Time
Feel Free to Check Out My Blog: One Year, 52 Photos, 75 lbs
Canon EOS Rebel XT
Okay to FIX my mistakes and repost in DPS
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