I started letting mine have short sessions on Banjo Kazooie : Nuts and bolts on the xbox when he was 4. You need to do a little bit of work on the game yourself first, but then it's a young'uns paradise, being able to drive, fly and boat around a big bright island knocking over trees and clockwork cows.
He still plays it now (at 7), but now he can use the vehicle builder, and it's great for encouraging logical thinking and creativity.
It's not xbox live, but you can pick it up for a tenner in a lot of places.