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Why not a Wii or a Wii U? Makes a whole lot more sense. But if they insist on one of those, what are the ages of the kids? Big difference between 5 and 10 ya know?

In general though...

X-Box 360/PS3

Sonic Generations

Sonic Classics Collection

Sonic All Star Racing/Transformed

Street Fighter

Marvel vs Capcom 3

Spiderman Shattered Dimensions (older kids)

WWE _____ if they're wrestling fans

X-Box 360

Naruto Path of a Ninja

You might question the inclusion of fighting games, but I think that they work great for kids. If a kid is a bit too young for something like Ratchet, they'll wander around for a little while and give up. If a kid is too young to master 100 hit combos in MvC 3 they'll still have fun hitting buttons until something cool happens.

Seriously though, just get them a Wii, or if they already have it and are bored with it, either invest in new games, or a Wii U. Recommending a 360 for kids is like recommending the Wii to a 30 year old who loves military shooters.