Viva pinata is colourful and cuddly but i think it might get a bit too much for kids, and it could get boring. Maybe a racing game, lego star wars and kameo. Or maybe pick up some original xbox games. Theres more choice
My 5 year old absolutely rules at Star Wars Battlefront 2 on the PS2 so I let him have a quick blast of GoW (extreme content was off) and he was loving it - had to switch it off and do the good father thing.
As someone else said, Lego SW2 is ideal because of the co-op mode. Also, Cars is a very easy game for kids to pick up and has some good 2 player mini games.
Live Arcade also has Frogger and Galaga and maybe Rally-X but I haven't played it on the 360 yet.