Our church bought a set of color coded hand bells, along with color coded sheet music for very young children. We have had some as young as 3 playing in the hand-bell choir at Christmas. They come in all sorts of combinations and can be purchased easily from several sources. With 2 children playing, you can have complete songs.
If you want to be a really creative Uncle, go to Lowes and buy metal or copper pipes, cut them to different lengths, drill two holes on opposite sides, slide cord through them, and string them from a simple frame. They strike the pipe with a small mallet, or a small piece of solid pipe, and they can make music that way. When they get tired of them, especially if you made them out of copper, hang them outdoors where a breeze will turn them into wind chimes.