The new HD and HD+ both have the ability to set up to six users so you can share the device with the children and be able to restrict them to their own set of apps and books and music and video. The 7" is about the same price as the Color. Check them out, you might find that the HDs are perfect for what you want to do.
I have a 4 and 6 year old and they both use my back-up Color. I have completely blocked internet access as well as made puchases impossible unless you have the password. I am wanting a one of the new Nooks at some point because of the profile options, but for now I use what options I have to keep them from purchasing or searching the internet and then I also keep fairly close tabs on what they are playing with so they don't accidentally delete anything that I have purchased.