There's a list of ALL supported camera models at http://www.apple.com/macosx/upgrade/cameras.html so make sure you check against this.
At the moment, you can pick up several decent, well built cameras for under $150US including some that are as high as 4 megapixels, from name brands like Kodak, Olympus, Samsung, etc. Don't get caught up in the megapixel hype ... try to focus more on build quality and ease-of-use as this will be far more important for the kiddies.
Also remember to pick up some decent rechargable batteries - you'll need them.
- iMac G5 1.8GHZ 17" | SuperDrive | 160GB | 512MB | Airport Extreme | Bluetooth Keyboard & Mouse | Wacom Intuos II
- Pentax *ist DL - JVC MiniDV Camcorder - Airport Express - iPod Nano 1gb white