I made the very same choice earlier in the year. Choosing between two 20" kids bikes versus the BF Osata.

You can get decent deals on the OSATA, but even after them it will still be more expensive than a relatively expensive kids bike such as an Islabike. The Islabike is very light and the components are all kid-sized down to the narrow cranks. Sure, in a few years we will have to switch to a bigger bike, but then the kids will be in a range where the used bike market is pretty good. And they'll be at an age where a decent used-bike is perfect if they're going to use it as transportation where casual damage or theft is a real possibility.