Lego Duplo is a great way to start kids off with building blocks. When they don't put things in their mouths anymore go straight to regular legos!
My son, age 2, has two sets of Lego Duplo - both are piled together in this picture making it look like there are a lot more blocks than really come in each set:
Lego Duplo Building Fun - contains basic colored blocks with which you can build some animals including: a penguin, a polar bear, a duck, a giraffe and what ever else you want! They give you a sheet of animal eyes to stick on the blocks. They do give plenty of eyes, however, ours were gone in the first two days - I found eyes everywhere! This set was purchased at Toys R' Us for around $32. I have also seen these sets at Target, Walmart and of course Lego itself!
Pros - great for hand-eye coordination and fine motor skills, fun for kids
Cons - the storage box they come in is very thin cardboard and doesn't hold up well. Get a plastic storage bin at Target or Walmart to store them in.
Lego Duplo Toy Story The Great Train Chase - contains three train cars (to assemble), Buzz Lightyear, Woody, Jessie, a saguaro cactus and other random blocks. This was also at Toys R' Us during the holidays but now I can only find it on Amazon for around $36.
Pros - characters and train cars have moving parts - fun for little ones, great starter set
Cons - characters look a little strange. My son said to me, "Mommy, why does Woody look weird?"