I use Wilton's Snow White Buttercream recipe, using meringe powder, shortening and water, only (no butter, eggs or cream). After I ice the cookies, I let them sit out to dry for a couple of hours or so. The icing will be hard on the surface but soft inside. As long as you lay the cookies gently one on top of the other, the icing doesn't get too smooshed.
Alternatively, you could colour your sugar and skip the icing. I have a little mini food processor that I'll put a cup of sugar in with some colouring paste and whir it around. It blends the colour evenly and fines up the sugar a bit, making it even better for sprinkling on the top of the cookies.