Have you ever heard of David Kaye ("Silly Billy")? (http://www.sillymagic.com/
) I saw him at a convention a while back, and he taught on the "three ages of children" (Lecture notes, "Kids Show Kliff Notes", are available on his site for relatively cheap ...) He says it's OK to do shows for younger children (not really any younger than 3, though ...) For ages 3-6, he recommends being very silly, making them laugh (and laughing with them.) Slapstick/physical comedy is great. (On yourself, that is. Not on them ...) And if they like something, do it again. And again. And again. Familiarity is very important to them.
Keep the individual tricks relatively short, and keep the show to less than half an hour. Very visual and colorful things are also good ideas. And if you can make referenes to what they like (whether it's Sponge Bob or whatever), it adds a nice touch.
I've done parties for children as young as 3 (well, there was a mix of 3- and 4-year-olds, maybe one or two 5-year-olds there, too) and it went well.
Balloon animals are nice, but be careful that they don't put them in their mouths and/or choke on pieces of popped balloons.
Hope this helps some!