Perfect for kids, and fun for adults, too. The use and accuracy of Kinect is better than any other game I've tried.
The game looks wonderful, and the world of the puppets is brought to life in loving detail. Vibrant and detailed, this is not some cobbled together cash grab by the publisher. The voice acting is superb, and there are relatively few concepts to learn to navigate the game. As I said, I played through this with my 4 year old, and she got it right from the start.
The Kinect tracks effortlessly, and is way more forgiving/precise than expected. I'm used to most Kinect games turning into a tune, tune, and re-tune cycle when it comes to usage by kids. Once Upon a Monster never once threw us into that cycle, and developers should look to this game as the benchmark of proper usage of the Kinect. It also seems to work in smaller rooms, where other titles like Fantastic Pets fail.
The only negative I can find is that there is a DLC pitch available from the main book selection screen. Try explaining to a child that the attractive next page is "not really there," as you have to pay for it to use it. I would have loved to have seen this tucked away in a pause menu.
Overall, if you have a kid around that enjoys Sesame Street, this is the game for your family. You will not be disappointed, and your kids will get a kick out of just about every second of this title.