I was also going to mention ukuleles, and mentioned to you on another thread Harvey Reid's third hand capos, which make an open chord but the notes on the fretboard are still in standard. There are also some decent inexpensive harmonicas for kids, hohner bluesband, but only in c or g, but which let them participate rather nicely.

   Hohner also had a pretty good nylon string around here a while back, and one I tinkered with had a pretty decent intonation. Now all I see are First Act steel strings everywhere.