So I should clear up a few of the problems here...
This was a Christmas favorite when I was a kid. My mother used both orange and lemon peels, and I learned from her.
Regarding the bitterness: This comes from the oils in the peel, not from the pith, which is virtually tasteless. To reduce bitterness in the peels, drain off the boiling water, refill with cold water and bring to a boil again. The more you repeat this step, the less bitter it will be. Be careful, though, because too much boiling will render your candy tasteless. 2-3 times is usually enough. Test by tasting.
I don't remove the pith; it acts as an absorbent, soaking up the sugar syrup and giving my peels body. For that reason, I use navel oranges or thick-skinned lemons (like the huge ones that grow everywhere in Southern California).
I allow the candy to dry out until it's tacky, then toss it with sugar to finish it. (You can use colored and/or flavored sugar too.) This allows me to store it dry in containers without it getting sticky. You can dry it in a cool oven (200 degrees or less) or simply let it sit out for a few hours.
Also, try adding finely ground ginger or nutmeg to the sugar (for orange peels).
Or dip one end in melted chocolate and let cool (excellent with orange or lemon peels).
Or dip one end in thinned royal frosting and let dry (experiment with different flavors).
There is no end to the variations that are possible. Let the kids come up with thier own!
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So I should clear up a few of the problems here...
This was a Christmas favorite when I was a...