Proper English please?

the first is correct. 'used' is the past tense

It should be..."Did you use to hand out Valentines? We used to make ours"

Because if you use "did" at the beginning of a sentence, the following word other than "they" or "she", etc has to be in present tense. So for example, "Did you TAKE my pen?" instead of "Did you took my pen?"

The answer then has to be in past tense, "We USED to make ours." Beause you did hand out Valentines before. So is over already. Therefore, you should answer with a past tense.

In all, the correct one should be ..."Did you USE to hand out Valentines? We USED to make ours"

Actually, the correct way to say this if you wish to use the word "used" is as follows:

Used you to hand out Valentines? We used to make ours.

While 'We used to make ours' is correct, in my view, the first sentence (both options) is not proper. I would say 'Are you used to hand out Valentines?'.

the one with used

use for the first - used for the second....did you use to hand out Valentines? We used to make ours

Catfish is correct.

However, we don't generally speak like that. It sounds so pretentious. So, that aside, the first one (with "used) is correct.