AIf I were to bake a red velvet cake for a birthday I know traditionally cream cheese frosting is the way to go but decoration is perhaps limited for a toddler. Would fondant suit this type of cake?

the sky's the limit -- but i would not feed that much food color to a wee one

and if god ever sees fit to give me grandchildren i will make nice calm colorless glazed vanilla pound cake for their little birthdays -- i already have a castle pan and a train pan and...

I cover my red velvet with a crusting cream cheese frosting before I put fondant on it, and it works just fine. I use Earlene's which doesn't have a ton of cream cheese in it, but it still gives the traditional flavor combination people expect with red velvet.

http://www.earlenescakes.net./icings.htm

when I'm doing a decorated red velvet, I use my cream cheese BC as the filling and IMBC on the outside. 

my view is that people like RV because they like the cream cheese, so I don't like to leave it out completely. 

AYes k8 memphis you are right about colour and little ones, I actually changed my mind every day last week about how the cake would be. I'll do a red velvet just for us and a vanilla sponge for the birthday.