As I said in another comment, while I do not like to say "no" to my kid, I really hate him being used as a pressure point for milking parents for IAP money. If your app is respectful towards the parents, I will gladly pay you and probably more than you think.
Here is a video of my daughter playing the Racing Penguin - http://www.youtube.com/watch?v=qaF6dPiJ-NM
She went through the free version in a zippy and kept playing it over and over again. I took her iPad, disable Restriction and bought the paid version.
Also, when we've tried a premium-only approach our apps have been made available for jailbroken devices within a couple of weeks, with little chance to directly monetize these pirated free copies of our apps. See, for example: http://theikidsblog.com/blog/2010/11/30/arr-there-be-pirates...
This time around our approach was to build a premium product, price it accordingly and let people try it out via the free version. It's hard to know what the best way to handle it is - but that's definitely part of the fun of the wild west of mobile apps these days..and as I mentioned in an earlier comment, the freemium model seems to have a lot of traction..
Instead of asking for money upfront, you should give the app for free with a few sample monsters. Then you can provide the full package with in-app purchase. The logic behind it is that it will be easier to convince the parents to pay for it, after their kids love it. Another reason - with a $2.99 price point, it will be hard for you to hit the top list, which has the most influence on your sales. But you could charge that in an in-app purchase without affecting your listing in the free apps.
If you decide to do it, make sure to ask the user to upgrade in strategic locations (For example, after they launch it several times, after they finish all the paintings, etc.)
Good luck!