Definitely check out the Fun1 - it's the smallest boat out there period and the best for little kids IMHO. Drop in at a local shop and have your kids sit in it and compare it to other boats. Not sure where your located, but I'm in Fort Collins and you can try mine out in a pool, and a group of folks in Denver at hitting a pool on Sunday's with several small kid boats in tow.
My avatar photo shows my oldest in his yellow Fun1 last fall when he was 7.
The Fun1 fits my oldest boy who just turned 8 like a glove - he's tall and skinny. This year will be his last year in it and next year I'll get him a Fun1.5 or possibly a WaveSport Fuse 35, as they're very similar in overall size/specs. By then my 5 year old will fit the Fun1 well - it's a tad bit big for him now. Until then, they get to share and trade off on trips to the pool, river, etc.
I don't recommend getting your kids an older school small boat as they're just too little. I tried that early on and my oldest struggled to try and paddl those boats when he was 3/4/5. My wife was very skeptical when I brought home a Fun1 - until she saw my oldest - 5 at the time - hop in the boat at the pool and paddle it around effortlessly. The boat is light enough he has no troblem packing it around himself, empty it out when he bails, etc. It's been the best purchase kayak purchase I've ever made.
Here are the specs for all three boats that can also be found at their respective websites:
Boat: Fun 1 Fun1.5 Fuse 35 2Fun (classic)
Length: 5'3" 5'9" 5'10" 6'3"
Width: 20" 22" 24.5" 24"
Volume: 26 gal 35 gal 35 gal 46 gal
Weight: 19.8 lbs 23 lbs 26 lbs 26.6 lbs