not as sexy as what you are thinking of- but we got the kids a VTECH camera 2 years ago for Christmas. It was the previous model of this:
http://www.amazon.com/gp/product/B0053X61WU/ref=sr_1_2?ie=UTF8&keywords=vtech%20camera&qid=1358827249&sr=8-2
The children were 3 and 5 when they got it and a year + later it still works, and they enjoy playing / taking pictures with it. There is also a cute game feature that they love.
Put some things to be aware of:
1. Although we have a lot of technology, the kids do not play with out phones.
2. They do not have any other childrens hand held technology - no leapster, ps2 or whatever the hot item is.
This may influence your child's POV on the camera and game feature.