I love to work with the MaKey MaKey! It's an easy and fun interface between the physical and the virtual. Get your kids to create their own video game and then make their own controllers!
"MaKey MaKey is an invention kit for the 21st century . Turn everyday objects into touchpads and combine them with the internet. It's a simple Invention Kit for Beginners and Experts doing art, engineering, and everything inbetween."