Hi, You might find the "Electronic Bricks" a good way to go. Small kids can identify the bricks by sight, and you can talk about what they do. Like these:http://arduino-info.wikispaces.com/ElectronicBrickStarterSet
Then you can talk about what "Behavior" the "thing" should have. You will have to start off "programming" for them, but once they get interested in "Why does it behave like that? How do we change it?" you can let them experiment.
Also there is a drag-drop block language for Arduino called ArduBlock. Similar to old "Lego Mindstorms". See it here:http://blog.ardublock.com/engetting-started-ardublockzhardublock/
Some comments here:http://arduino-easy.blogspot.com/2012/06/ardublock-graphical-programming.htmlhttp://hackaday.com/tag/ardublocks/
A kit here:http://www.dfrobot.com/index.php?route=product/product&filter_name=kit&product_id=707#.UDziEdZlThI
Let us know how all this is going...
DISCLAIMER: Mentioned stuff from my own shop...