Heat oven to 350°F.
Combine flour and baking soda. Beat butter and granulated sugar in large bowl with mixer until light and fluffy. Blend in dry pudding mix, egg and vanilla. Gradually add flour mixture, mixing well after each addition. Transfer dough to lightly floured surface; mix with your hands until ingredients are well blended and come together to form smooth ball.
Divide dough into four pieces; roll each into ball. Flatten each into disk. Roll out dough, one disk at a time, on lightly floured surface to 1/4-inch thickness; cut into Christmas shapes with 2-inch cookie cutter, rerolling scraps as necessary.
Place, 2 inches apart, on parchment-covered baking sheets.
Bake 10 to 12 min. or until edges are lightly browned. Cool 1 min. Remove to wire racks; cool completely.
Mix powdered sugar, meringue powder and water until blended. Spoon into separate bowls to match desired number of colored frostings. Tint frosting in each bowl with desired food coloring(s). Spoon frosting from one bowl into piping bag fitted with small piping tip, such as a number 2, 3, or 4. Repeat with remaining frostings to fill additional piping bags fitted with piping tips.
Use piping bags to pipe line of frosting around edge of each cookie, then gently squeeze additional frosting back and forth over top of cookie to cover with frosting. Decorate with sprinkles as desired. Let stand until frosting is firm.
