I don't get that at all... there are kid friendly games that are out there that are decent quality. Granted you have to look beyond the title or cover art, but you have to do that anyway. Read some reviews and go from there.

I would suggest listening to the kid and seeing what he is interested in, and what his friends may have (if being able to play with his friends is of interest, sounds like it is from the original post)

I have a 5 year old and a 3 year old.

I'd actually suggest the PS2 even though I don't own one.
The PS2 has a huge library and most certainly there will be appropriate games at good prices, including PS1 games.

I have a cube and an X Box and as stated by others each has their own titles that are geared toward the age group you mention.

Another excellent pick would be the Cube and a GameBoy player. It widens the library extensively and has all the great stuff from the past and new games coming out frequently.