Get an XBox.
PS2 has a very high hardware failure rate, and an absurdly high cost.
The XBox has better graphics, better online capability, four controller slots so four people can play, and now the game library is just as good as the PS2. There is even a better version of Grand Theft Auto for the XBox (not that you want to buy that to your kids

)
An XBox and the Prince of Persia 3 game, thats what I would get them. A gorgeous game and they actually have to think if they want to beat it.
There is also the Gamecube option. Its cheaper, and has plenty of VERY good games. Better for small children too. It has a very good wireless controller available for $35. The graphics are almost as good as the XBox, but it has very limited online capability. The Cube goes for $99 and comes with a disk with old Zelda games. Games run for about $30 - $50 new. Prince of Persia 3 is also on the Gamecube (I never get tired of recomending that game)
For game reviews, check out
http://www.ign.comIt has subsections with reviews for games for each console, and an Editors Choice section which specifies the best games available.