I am having the same thought Coomber! He is on a 20" wheeled bike at the mo and he is too big for that. According to the Islabikes website he is just big enough for their 26" kids bike, I'm not planning to give it to him until the summer, should be OK fingers crossed!
I was tempted by this one myself, my brother went and looked at it for me but I passed as I only wanted the frame to upgrade my daughter Hahanna; she's had that from 8yrs old, same size and year and it's been great. Best advice I can give is maybe forget the velocity stem unless you can find a really short one otherwise the reach might be a stretch for a little one, and probably just as important get/make some shorter cranks. I cut down some Raceface turbines for hers and built it as light as I could to a budget; SIDs, Hope/217s, XT Vs, etc.
I'd stick with rigids for the time being, if you can get a short stem on there.
They're always going to be lighter. I was lucky enough to have some old 98 SIDs lying around that needed a bit of work, they're super light and being air sprung you can set them up to work for an 8-10 year old... coils you struggle with (although my 7 yr olds mini manitous only run one spring to work for him!)