I use old mugs and things as well, I have even tied a string around some and hung it from the cage door. Gives them something to play with as well.
I buy mine from the feed store, and get about 6-8, 60 pound bales of first cut, and store them up on pallets in the shed. I turn them every month or so, and keep one in a large cardboard box in our attached garage. From there I fill a feed bag and keep that in the chins room. Using a pair of kitchen shares I cut it off the width of my hand and fill their cups every day.
Yes I think everyone feeds loose hay, or they should. You can use cubes as well, but they won't get the same chew from it, I don't think.