By all means yes. I've done this plenty of times. Anything you can do to save time and money is usually a good idea. The goal of a prototype to prove out the concept and communicate the function to others. As you progress, the prototypes get more refined and more presentable.
You may find that the idea does not work as planned and you just saved yourself some money. Sometimes my initial prototype shows serious flasw and it leads me to a re-design that is even better than the original.
Here is a great site to learn how to make stuff, it's called MAKE. It is also a magazine. Check it out: http://www.makezine.com/
As for packaging, yes also. I used to work with an industrial designer who would print new artwork and attach it to an existing retail box. I read on Mark Reyland's blog where he bought some windchimes just so he could use the packaging. http://inventoropinion.blogspot.com/2009/03/shopping-for-wind-chimes.html
Not too many rules here. Have fun with it and get creative.