Last week I checked out a promising tool (still in beta) called Microsoft Shared Computer Toolkit for Windows XP.
My reason for using it was to create a login for my nearly-4-year-old son. Using the toolkit, I got it to the point where he has a start menu which lists only shortcuts I put there ("All User" programs aren't listed), and he doesn't have the ability to delete anything or access any system stuff. Of course he's not going to do any damage (unless inadvertantly), but I wanted to be sure the PC is safe, so he can actually use it.
The tool has the ability to turn on "Windows Disk Protection" - basically any changes to the hard disk can be rolled back at next restart. I can see this would be ideal for public computers or school computers, but terrible for my home PC, as my wife's high score in Chicken Invaders 2 was lost! And DO NOT try and run a defragmenter while this feature is turned on (der).
There was a lot of configurability in this toolkit. It could be interesting for people who have PC's in their home just for kids, as you can restrict a lot of stuff (not sure how it compares to Group Policies). The toolkit is deployed in the form of HTML Applications (HTA files), and I wonder if this is going to be the final format?