Pretty much all that has been said makes sense to me. Kids like to be at the controls, so the layout should be simple to operate. That doesn't mean just a loop of track however. There are plenty of standard Lionel track plans designed to fit a 4x8 sheet of plywood, the most readily available piece of lumber on the market.
Whether or not to run post war or newer production is up to you. I think there are many items from both eras that will perform well for kids.
In my mind, action, above all is necessary. I would load the layout with operating cars and accessories. Now before anyone says that Lionel accessories can be finicky, I agree. However, kids and some of us adults need to be taught patience. Whether you are building this layout for your own children or for your grandchildren, they should learn the importance of slow and steady. If the kids your intended layout is for are too young, then a different approach will be in order. However, if the kids are a bit older, lets say older than five years, then I believe they should have some hands on in the building and set-up.
My own grandchildren like to play with my garden railway trains because I have inserted some action that requires them to think.
