People saying its more immersion breaking to have invulnerable kids than no kids at all, I highly disagree. I'd rather have non-attackable kids than none at all. Oh wow TES is full of advlts and they just pop right out of the ground. :0
I agree: the Children of Morrowind mod did a great work adding children, and they were invulnerable as well.
I do think they were seen a bit too much in a modern way in that mod: playgrounds for children in a medieval setting is probably too much... I guess just having them playing in a street or field with wooden swords would be enough.
Oh, and they were too much well-behaved in my opinion, also. At least, there should be a bunch of little maveriks in the crowd of them!
As for education, there could be classes in the temples to teach children to read and write, for example. After all, it seems that in Tamriel almost everyone is literate at least to a minimum degree, which make the world much more like ours than a medieval setting.
It's one of those things that help the average player to better relate to the game world, I think.