Thoughts and observations:
Ive had the 32GB iPad 1 for over a year and love it. It's my ebook reader, video player, music player, emailer, web surfer, and game player. I spend 2+ hours a day with it. The screen is stunning even when watching standard defination video; with HD it must be seen to be believed.
I purchased a Kindle Fire, and a Blackberry Playbook and gave each device a though testing .. the Blackberry was returned within 3 days and I still have the Fire, but its most likely going back also. I would keep the Kindle Fire if I did not have my iPad but I sure dont need both. [I anyone wants a great deal on a Fire with a case .. contact me !]
Keep in mind that the Fire costs $199, but they only give you 1 month of the free Prime service. The Prime service allows you to access
Amazon's huge library of digital content [movies, tv shows, music] for free. You have to pay $79 for a year of Prime after that free one month trial. Without the Prime, and access to the streaming digital contact, the Kindle Fire is not a viable tablet in my opinion.
If you need to "scrimp" ... get each child a Fire [$199] and an Amazon gift card for $80 [$279 total for each child] - and you will have done really well. If you want to really WOW them get them each the iPad 2.
I highly recomend buying refurbished iPads from the Apple Store. Each unit is tested, given a new case and battery, and comes with the full one year warranty.
The rumor mill says that Apple will release the iPad 3 soon, and that the iPad 2 will then be available in 3 different models; one of which will be priced near $200 to compete with the Kindle Fire.