The should they/shouldn’t they thing all comes down to a bit of common sense doesn’t it? If they want to use them (and my 7 year old does and has been asking for about a year), then set them up properly, use something that has plenty of float if you can, and make sure they’re happy using them – I think mine picked it up quicker than I did BITD!
Set up right they’re likely to be comfier and have more float than using clips and straps. That’s the main thing I remember about moving from clips to clipless way back then – in clipless I got some float, with clips and straps done up I got very little. Plus you can get out of clipless much easier than out of straps in a hurry (obviously once you’ve had some practice).
Also there’s the moderation thing – he’s not just riding clipped in. He’s probably riding on flats more than half the time. I’ve got an array of different pedals he’s going to be trying out too.
As for getting little shoes – a patient watch on eBay will turn something up if you don’t want to spend a lot. I got some size 33 Answer shoes recently that way (which I don’t think are available new anymore). Otherwise the Fly Racing ones or DMT Marathons seem to be the only other shoes that go down to real children’s size – neither are cheap though.