In the market for music made specifically for kids? As with books, music makes great gifts. If you just feel like browsing, check out CD Baby. They have an amazing kids/family selection.
Here's a little list of albums that were played repeatedly at our house when my kids were younger. These aren't the newest albums out there, but they have been kid-tested!
Buckwheat Zydeco: Choo Choo Boogaloo
Laurie Berkner: Buzz Buzz
Sesame Street: Elmo and the Orchestra, (MP3 version)
SteveSongs: On a Flying Guitar
Sharon, Lois, and Bram: Sing A to Z
Jim Gill Makes it Noisy in Boise, Idaho
Cathy Fink & Marcy Marxer with Brave Combo: All Wound Up! A Family Music Party
Trout Fishing in America: Family Music Party
Hmm...I guess we liked family music parties!