Also, Times Square still does (as of April) have a section blocked off to traffic, they have chairs and tables sitting out in the street for you to sit and rest a bit, wait for someone to come out of a store, etc. There is a Ferris wheel inside the Toys R Us in Times Square as well.
I personally would risk spending a few extra dollars on separate tickets to different attractions, because you may find that walking around and people watching takes all your time and you don't WANT to have to rush from point A to point B to do some other thing.
Serendipity is a must for a child as well. http://www.serendipity3.com/main.htm
People watching is my absolute favorite pastime in Manhattan.
