Upload & Sell: On
I've been pretty happy with my Canon G9, but I've never used it for fast paced indoor stuff. My wife has an S95, it does pretty well for the most part, but I don't know how it'd do with the faster shutter speeds. The biggest issue I have with using a p&s for action is the lag when you press the shutter, I find I miss more shots due to that then blur, noise, or anything else.
Maybe a micro 4/3 camera? You could get into a kit for $300-$400 without a problem, and they could expand it later if they like shooting...