Of all the classic thief abilities, the one that seems to see use least frequently in my games is Pick Pockets. I blame the rather unimaginative name, as well as some misconceptions that I and my players have held about the ability.
As a young DM, I saw pocket picking as an act of stealth: You sneak up on someone, and if you manage to do so unnoticed, you carefully fish about in his pockets. This, obviously, made it extremely difficult to pull off a pocket-picking, because it inevitably required a Move Silently roll to get close enough to the target. Making one roll with a relatively low probability of success is bad enough; requiring two made it essentially pointless even to attempt.
But the classic pickpocket operates in a crowded marketplace, not a dark dungeon, and probably the most classic ploy is bumping into someone and surreptitiously relieving him of his valuables while pretending to apologize and dust him off. That's much less about stealth and much more about manipulating the target's attention and perception. Through a combination of words, gestures, eye contact, and other subtle techniques, the thief draws the mark's attention where he wants it, and away from what he's really doing.
What else might a thief do with such a talent for misdirection? Planting an item on the mark is an obvious possibility -- the reverse of a traditional pocket-picking. A sneak attack for double damage, a.k.a. "backstabbing" is another one. A good line of patter keeps the target from noticing the dagger which the thief intends to stick between his ribs. If the thief is good enough at it, he might even be able to pull it off in a crowded room without giving himself away.
Simple faux-magic tricks (i.e. prestidigitation) can be carried out with panache, as can all sorts of variants of the old shell game. Switching a desired object for a worthless replacement right under the nose of the owner? Absolutely. Need a lock of someone's hair for some nefarious alchemical purpose? Roll the dice. Slipping poison or a sleeping draught into a goblet of wine? Yep, that too. Or maybe you'd rather save the king's life by switching his poisoned goblet for a safe one, without making a big scene. Same principle applies.
As DM, I'd ask the player for a general description of the character's "cover" -- what's his excuse for getting close to the mark and what's he saying or doing to divert attention and suspicion while he works? Maybe he's flirting, or pretending to admire a piece of jewelry worn by the mark, or chatting with her about the artistic merits of a painting they're gazing upon. If it seems decently plausible, roll the dice and see if he succeeds.
"Pick pockets" strongly implies that the ability is only good for picking
pockets, but the same set of skills that allow a thief to lift items off an
unsuspecting mark are useful for a multitude of other sneaky things
as well. Terms like sleight-of-hand or (my new personal favorite) legerdemain are much less constraining, encouraging more imaginative use of the technique. Pretty much anything a player can think to try that involves diverting a mark's attention away from some small manual task could be considered an application of this versatile skill.