When I am making my I Spy quilts, my smallest pieces are 2.5" and I try to go no bigger than 8.5". I am very much guided by the size of the print/motif. I know the little pieces/motifs will be more problematic for very young children, but I hope that my quilts will grow with the child and will keep their interest for years. Tartan's comment about match I Spy quilts is also a good one - anything that gives many options for play/interaction/engagement is great! Here is a link to some of my I Spy quilts:
I Spy Quints (not a typo!) and counting...