Umm, I love this idea from Girl with Fabric's nursery. She hung them in a horizontal line on the the walls. No, I have no need for nursery decor quite yet, but with 26 letters it may take me a few years.
If that is a little to much project for you. How about individually framing these hip flash cards from The Land of Nod and hanging them in a grid over a crib or a changing table.