This is one of the favorite toys in our house. We've had it since my 4-year-old was two. He still likes to stack all the pegs and organize them by color. My 1 1/2-year-old just likes to poke them in the holes and wear them on her fingers. The set we have has pegs that are a tad bigger than these look. I got mine at Office Depot in the school supply section. It's great for fine motor development.http://www.homeschoolingsupply.com/i...es-id-6264.htm
But I think the best "educational" toy you can give your kids at that age is yourself. Read or look at books, play fingerplays, dance, explore the outdoors together, splash in the tub...
At that age, my kids liked to play with blocks, balls of all sorts, stacking cups, playsilks, sidewalk chalk, animal figures that are small enough to fit in little hands... Mirrors are fun. They can have a blast with a couple wooden spoons and a metal bowl. I think someone mentioned on another thread the best toys for kids: a stick and a box!
With the holiday season approaching, I'm going to be making my lists as hints for relatives. I've almost got them trained to avoid toys that require batteries.