I really don't think that cheesy long eared aliens are what it takes to appeal to children. It was not warm fuzzy ewoks that hooked me on Star Wars. The Empire Strikes Back was by far the darkest of all the films- Luke gets his hand chopped off, Han ends up frozen in carbonite and there really any Jar Jar elements trying to cater to children (other than R2D2 and C3PO, whom Lucas obviously feels don't cater to children enough or we wouldn't have had to endure Jar Jar). Yet when I was eight years old, no movie could come close to ESB (and truth be told it probably still holds the position of my favorite movie of all time). I would really think that things like the spectacular lightsabre battles and the pod race would be much more appealing to little kids than Jar Jar. I also wonder if the dismal casting of Anakin had something to do with trying to cater to little kids (I am talking about acting ability and the way he was characterized), they could have done much better. I also relise that they wanted Anakin to seem fairly normal (no hints of the dark lord to come in that child), but what it ended up doing was producing a child who is unrealistically normal for his situation. The character that they are trying to sell us is not an average little kid and trying to make him seem like one doesn't make him believable.
Did I mention that I really liked the Phantom Menace- if it had been a piece of crap I wouldn't even waste my time picking it apart like this.