One of my favorite kids music toy is a mini piano where you have to replay one among 5-6 melodies (each melody is 5-10 notes that you have to memorize by ear — no lights involved) to unlock a little happy sound. This toy managed to keep both, dad and kid busy for a while.

For anyone who likes the idea of better music "toys" for their kids (i.e. not toys at all, but still easy to use) but doesn't have the capacity to build stuff like this, my kids and I love the Korg Koassilator: https://www.korg.com/us/products/dj/kaossilator2/

You can usually get them on eBay for USD$60 - 70. You do need to bring your own speakers, but a pair of cheap PC speakers are good enough, and it's a good start on creating a whole synth + effects chain.

Speaking of which, there is also the Mini Kaos Pad, which is a dynamic effects processor: https://www.korg.com/us/products/dj/mini_kaoss_pad2/

This one is a little more difficult to figure out for the kids as it is a "modifier" in the chain and they haven't quite wrapped their head around that concept yet. But still, it works great, has lots of features, and is really inexpensive for such a thing.

And finally, they have a number of these mini-synths that are in the USD$30 - 50 range that are a ton of fun: https://www.korg.com/us/products/dj/monotron_duo/