I think small projects would be great starters for a child. I know when I 1st started out, I wanted instant gratification. Scarves and blankets mad me wonder if I really liked knitting. I just got bored. So I started making toys, hand warmers, ipod and phone cozies.
When my daughter was learning to knit (she's 7) this was what she wanted to make. She made 1. It wasn't perfect in any way, but she was very proud of it. She used a size 10 needles and had many mistakes. Someday she will make the other.
Also check this out... I remembered in Mason Dixon Knitting
they had a little section on kids knitting page 86-102. In it there is a project knitting with potholder loops called superfancy potholder loop rug and size 35 needles. It is so cool, and would be great fun, I think.
These are jus tmy thoughts.