I have 8, 6, and 4 yo, and my neices are 13, 11, and 6. Universally (except for the 4 yo), the biggest hit is Rock Band. All of them can play together, they enjoy the music, and it is relatively easy (though a litlle tough for the 6 yo). GH II, GH III, GH:WT, RB1, RB2 are all the choices (GH:Aerosmith as well).
There are so many kids games, many of them movie based (Shrek, Surfs up, ratatoille, Bee Movie, along with at least a dozen others). There have been a couple of holiday bundles that are cheap, last year ESA has Open Season, cars, fusion frenzy ($30 total), this year it was Viva Pinata: Party Animals, Shrek, Sonic ($30).
Any of the Lego games (SW, SW:complete saga, Batman, Indiania Jones)
Any sports games (Madden, baseball, basketball, hockey, tennis, pingpong, boxing, olympics, soccer, etc). There is a new one every year, so I buy last years version for less than $10 usually.
Any car game (PGR3, PGR4, Frorza, Dirt, Grid, Burnout (paradise, Revenge), Need for Speed (Most wanted, Carbon, prostreet, undercover), Pure, Moto GP, Nascar (yearly), and a few others.
It is going to happen, so you have to decide 'when', but they (the boys especially) are going to want Halo 3. My 8 yo has been on my case for months, and I always tell him no, but during the holidays when my neices were over I buckled and let them play. They has so much fun. It is a 'M' rated game, but there is not too much gore. Even my 6 yo was able to play. They play against each other, and not online.
Viva Pinata, Viva Pinata 2, Marvel Ultimate Alliance, and most super hero games (Superman, Hulk, Iron man, 3-4 Spiderman games, Ninja Turtles, FF, etc). Forza 2, and Marvel Ultimate Alliance were bundled last year, and they are both outstanding games so you should find them cheap.
There are plenty of Aracde games that are probably good, but they have the Wii for that.
Xbox and PS3 Gamertag = Xerostomia
Wii = I'm too lazy to get the number