I'm getting better. After my first failed, but humorous, effort with the fondant, I decided to downscale. Less chance for the sloppy, crumbling mess known as attempt #1 (see post here). Better, but not great...yet.
A couple of things I have learned. Color is key. If it's a pretty color, chances are my eyes will be more forgiving of the...imperfections. One of the keys to success for me is going to be learning to hide my mistakes, and pretty colors make it easier.
Secondly, if I'm not actually using the icing to cover the cake but just to decorate it, I need to make the fondant stiffer, so that the letters/designs I cut out of it retain their shape. The stuff I used for attempt #2 was from my original batch of icing, so there has been no additional experimenting with the consistency of the fondant itself. We'll leave that to try #3.