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Kids can have a lot of fun with a camera or camcorder.  For the youngest kids, you want to be sure the device is easy to handle. Luckily there are lots of specially designed camcorders and digital cameras for kids. (Polaroid Pixie's and so forth)  For kids that are just a bit older (school age) then an affordable camera with greater photography or videography skills is usually warranted however.

The pocket camcorders that have proliferated on the market are one option for those hoping to keep costs down but get better recording skills while keeping things simple. Vivitar recently added the most affordable one we've seen. It's DVR 510 records basic 640x480 video at 30 frames per second. It's not currently touted as a kid's camcorder, but that's really where I would put it. If features a 5 megapixel sensor, fixed focus lens, a built-in mono microphone, and 1.8" screen. It comes with a waterproof case which is a great idea for kids of course. In addition, it has infrared night vision, how cool is that? It's not really up to the same recording quality of Flip or some of the other models, but it's definitely a step or two up from the kiddie cameras, and very budget friendly as it can be found online around $50.