I think that it depends on the style of clothing the children wear. A lot of cultures have dances that involve the hips and the way it's viewed also depends a lot on the culture. Children in different forms of African dance will do many dances that in American culuture we may find offensive. My MIL lives in Cote D'Ivoire (Ivory Coast) and we have quite a few Ivorian videos that have kids doing dances that involve butt bouncing, undulations, etc. and NONE of them are done in a sexual or inappropriate manner and they all look like kids, but I could totally see a Westener judging them or looking at it as a more sexual dance when it's totally not and no one from that culutre sees it that way. Again, this is where I think cultural sensitivies come into play.
There is a very cute video of a girl age 10 at Tribal Fest that I just adore. I hope the link will work:
YouTube - Chelsea performs @ Tribal Fest 6
I have shown it to my son, who is 9 and loves to dance. What I love about the video is that she is dressed like a kid and the movements are very age appropriate even with her hip and chest popping.
I think that we live in such a highly sexualized culture with MTV and pop stars dressing like porno stars that we sometimes get oversensitive forgetting that some folkloric and some cultures dance in ways that are perceived differently than they are here.
That said, I am a mother of a daughter as well and don't think it's appropriate for young girls to dance around in bras and such, but I don't really see the harm in learning belly dancing. I mean, if kids put their feeling it in, then theoretically the dancing should be done in a sweet and innoscent way. It is adults who sexualize things and relate it to sex. JMHO...