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Red velvet cupcakes are most often decorated with white icing.
Cream cheese frosting is the way to go!
Gravy icing is heavenly on red velvet - it's the traditional American buttercream. Personally, I like to pipe it on. I posted a great gravy icing here: http://countlesscalories.wordpress.com/2010/02/25/red-velvet-cupcakes/
I love to do a White Chocolate Frosting with Red Velvet Cupcakes and I make a couple of extra cupcakes and crumble them and place crumbs on top of the White Chocolate Frosting.