I've got a great book called Einstein Never Used Flash Cards: How Our Children Really Learn and Why They Need to Play More and Memorize Less, by Kathy Hirsh-Pasek and Roberta Michnick-Golinkoff. I highly recommend it if you're trying to figure out this issue.

"Educational toys" are definitely an industry, just as "educational" TV programming and DVDs and baby classes and all the rest of it is an industry. We all want to give our children the best start in life, and we're not developmental psychologists or scientists or early childhood specialists. So we rely on marketing and advertising to tell us what's "best" for our littlies. If you were faced with two similar toys in the toy store and one of them had a box labeled "Develops hand-eye coordination! Teaches colour recognition! Helps children to learn shapes and sizes! Reinforces counting skills!" you're going to be drawn to that toy over the one with the plain packaging because of what it's telling you it "does" for your child, and you sure as heck want to give your little one any advantage you can, and that toy certainly seems to fit the bill.

One of the authors of the book I mentioned did a study of children whose parents sent them to "academic" preschools (where the kids were using computers, learning their letters and numbers, etc as well as playing) versus traditional preschools that emphasise play and discovery and skipped the computers and flash cards. The study found that children in academic preschools had no short-term or long-term academic advantages over the other kids. Also, at the time they were in their first year of "real" school, there was no distinction in intellectual skills between the kids who had had "academic" training and those who had none. And here's the kicker: the kids who were in the "academic" group were more anxious and less creative than the kids in the other group.