I agree. Craigslist is an amazing site for finding decent stuff at a good price. I tend to avoid buying video cameras from ebay, as you never really know if they’re going to work or not. If the owner of the camera will let you come and test the camera before you pay for it, that could be a good sign that he’s on the level however.
And like you said, the price of a relatively fair used consumer camera is going to be about the same as a super basic, new kidproof video camera, so why not get them something they’ll grow into, instead of out of?
Of course, as soon as you give them a camera, your life will be filled with questions like "Mom, can I have a new pack of tapes?", "Mom, can I have a new high capacity camcorder battery?", and of course "Mom, I can I have a Glidecam 2000 Pro and the ProAm DVC250 Jib rig?" X-D
