My boys (age 3 and 5) are happy with basically stock spec Islabikes. I have swapped the tyres on a Cnoc14 for something a little chunkier treaded as it came with slicks (they now come with Kenda Small Block 8s).
However, they both have good (and sturdy, if a little sweaty) Bell Fraction Helmets, Fox Full finger gloves (picking grit out of a 5 year old's palms does not go down well) and the 5 year old has just got his first set of padded shorts.
Normal baselayers make good casual jerseys too.
My eldest has also stolen his Mum's old tiny camelbak.
However, I can see me spending significant amounts of money on the boys bikes as they grow up assuming they stay keen.
However there seems to be a bit of a gap in the market for a decent trail orientated mountain bike with 20in wheels that doesn't cost ridiculous sums of money.
At the high end you have Lil Shredder http://lilshredder.com/LIL_Shredder_Frames.html and Kranked http://www.krankedbikes.com/bikes
Then there is a big drop in terms of price and spec to the likes of Specialized and Kona. Their offerings are 250-300quid and come with Vs and a nasty suspension fork, I wouldn't mind spending £500 and getting something that's lighter and with forks that actually work.