Based on what I know (we have xbox, and have seen PSP and tried Wii), xbox has the best graphics but Wii is 'interactive' - so most kids enjoy Wii.
Xbox doesn't have many games suitable for young kids and even the 'cartoon' type of games may still be difficult for a 5-year-old. For Wii, they get to exercise a bit playing sports
To get a cheaper set, try ebay
Hope this helps.