When it is closed up, you can definitely tell it used to be a hat. It's just shaped that way. Instead of going through the rest of the decreasing rows to make the top of the hat, I continued knitting even and added the second color for the top of the purse. The darker color yarn is what was left over from making Tony's beanie that I didn't take pictures of, darn it.
I made the I-cord with the same yarn as the hat. There are two I-cords that I wove opposite in the gusset. The gusset was made by doing a pattern my niece, Danielle, showed me. You knit the row, but you do a yarn over with each stitch. That means there are double the amount of stitches on the needles. Then the next row, as you knit it, you drop off the yarned over stitch. That makes a big opening in the row. That is what I used to thread the I-cord through. I'm sure there are better ways, but I am a beginning knitter and that is what I thought to do. Here is what the purse looks like all opened up. You can see that I threaded the I-cords opposite in this picture. I didn't really know what I wanted to do with the ends of the I-cords, so instead of just tying them together, I stacked some buttons and tied it off. It gives it a little weight and interest, I think.
I do have to line the purse. Since it didn't start out as a purse pattern, the bottom of the purse here is a ribbed pattern meant for the bottom of hats/beanies and is stretchy. I'll sew a nice fabric liner and put it inside so the purse doesn't stretch out.
I'm going to be making baby hats and booties for my next projects. Two people I know are having babies, so I'm thrilled to be able to knit something for them.