D.D.
We have a iPod that my kids use. Here are the apps my 3 year old loves (all free):
fruit ninja
pac-man
pocket frogs
Thomas the Train activities
Where's my water
Hill climb
zoo sounds
race penguin
shapes
dog story (by Tabtale)
gingerbread (by Tabtale)
Xmas tale (by Tabtale)
I don't know of a kid-equivalent iPad though. The iPod is basically an iPhone that doesn't make calls - it only works through WiFi.