Inspired by a quote I read on another forum, what about the ability to set down totems as furniture, and the ability of said totems to actually affect the behavior of units that see it (IE, causing combat skill penalties, increased liklihoods to flee combat, etc)?
Basically, it works like this: when you set the totem down, DF looks to certain tags on the creature whose skull formed the totem - size, genpower, number and severity of potential attacks, that sort of stuff - and creates a series of effects for units who're in or are about to enter combat (hidden goblin ambushers, for example) who enter the visible areas around the totem. Depending on the total "power", for lack of a better term, of the totem and the number of totems you have out, the units will receive various bonuses or penalties to their abilities - if, for example, the main road leading into your fort is lined on both sides with goblin totems, smaller goblin squads who see enough of them would have a good chance of outright fleeing, while sieges would continued onward but be given a good case of the willies, reducing their effective combat ability. Replace the goblin totems with, say, hydra totems, and anything but the biggest, baddest siege armies that exist for no other reason than to wipe your fort off the face of the earth would be sent running.
On the flip side, friendly units and military dwarves who see the totems would receive bonuses to their combat abilities much in the same way as enemies receive penalties - confidence boosts, you might say.
The effects, naturally, would only extend over to creatures with the intelligent token in their files, so megabeasts and wild critters wouldn't be affected (though I think some of the semimegabeasts and a few other animals have the right token)
And even if the psychology stuff is out of the question, you can't deny that having the piked heads of your enemies lining your main road is just awesome.