I got my granddaughter a 20-inch bike ($5 on the Craigslist, and a couple hours of TLC). It turned out pretty nice. I gave it to her for a 4th birthday present, earlier this month.
It seemed so tiny when I was working on it... but it seems huge when compared with her 12-inch bike, or when she's trying to get on board.
It's got the coaster brake, which she's used to, but also has a caliper hand-squeeze brake on the front wheel, so she can start getting a feeling for that.
It's still too big for her, even with the seat at its lowest. (Oh - I got the seat upgrade over at the Boise Bicycle Project; the old one was scuffed up and not pink enough.) She can ride it fine, but starts and stops are just a little too much. By the time warm weather is upon us, hopefully she'll have grown another inch or two. She is much faster and more steady on the 20-inch wheels, than on those little roller-skate 12-inchers.
I'm happy about her enthusiasm for cycling, and for the ability she has already started developing. I was six, maybe seven, before I ever rode a bike. She was riding without training wheels at 3 1/2 or so. (She suggested I put the training wheels on her "new" bike, but I explained she'd never be satisfied to ride a training-wheel bike again.)