This is an excellent idea. I'd recommend:
1. Whatever icon is used on the main menu, make sure you're displaying it prominently in that section as well. For example, the tv icon should be shown with the actual tv listings. This will allow kids to match the media they want to the section more naturally. My son is 2 and he'd be able to understand that.
2. I would try using colored icons and a muted background color instead of the method you've used in v2. That will make the buttons themselves stand out more. Be consistent with them: if one has a border, they all should; make the icons themselves the same size; etc. You may even want to take #1 a bit further and color code the icons and sections.
3. There are some really good icon sets out there you could use. http://www.istockphoto.com/stock-illustr...series.php
wouldn't work unless you color coded the sections, but you get the idea of what I'm talking about. For really young kids you could even add a name for each one at the bottom of the icon and it'd help them remember better ("Telly goes to Duck Tales and Blues Clues, Moo goes to Monsters Inc and Boondock Saints"). If you need to purchase some stock art icons, PM me and I'll buy them for you.
4. Look at the ClearLogo thread. Those will be supported by my site in the next few months. Kids will associate a logo easier than actually reading it. Posters or fan art will still work best, though.
5. Brainstorming here, but my kid will accidentally leave his movie sometimes and I have to intervene before the complaining starts. We have an AppleTV remote that only has a couple buttons. We also have a more advanced remote. Would it be possible to set a lock mode to a button that's not used much that would change every button on the AppleTV remote to pause/play? So I would press 9 (or whatever) on my universal remote and it'd lock all of the controls to pause/play until 9 is pressed again. Is that more of an XBMC feature?
6. Even though you want to keep the colors bold and design simple, you might want to add a drop shadow to the menu items so they pop out more. If you're subtle it'll make it look really nice while still working great for kids.
7. Play around with some different view options, but use only one in the skin. A large poster view would probably work best. Don't worry about the overview, rating, and other meta information. Kids already know about their movies from the previous 57 times they've seen them.
8. Give parents the ability to turn off home menu options. My kid will only be using it for movies and tv shows, but other parents might want games, music, music videos, etc. Having options that lead to no content will only confuse/frustrate kids.
9. Integrate an RSS feed, but allow parents to toggle it. For kids that can't read, a feed that just lists the alphabet, numbers, or even short words would be awesome. For kids that can read, a feed with short little facts, rhyming words, etc would be cool too. I'm sure the community could put together a list.
10. Robgue's clock comment is spot on too. My kid can't read clocks yet, but seeing it up there will cause him to be curious about it and want to start learning it.
I'm really stoked by this idea and will definitely use it if you put it together. Not only that, if it's done well I'll make sure it gets mention on my homepage so people focus on getting kids shows whatever artwork they need.