check out reload. they can put graphics on from a digital file. i think its more like stitched... but looks good none the less.
http://www.reloadbags.com/ . looks like you can even carry kids around in 'em!
or hell. screen print it flat, and have the bag built up by them, or someone.
Plastisol is the ink used on tshirts and stuff. i think theres a vinyl specific ink that would work well. hit the phone book and call up some screen printing supply spots. in LA: Mclogans, 213/749-2262. in the bay, Hayward, its Midwest Screen Printing supplies. all these places to mail order too.
word.