There are going to be a lot of problems with trying to get a VM to start up automatically, enter fullscreen mode, etc. What I would recommend instead to solve this problem is using something like Windows SteadyState. SteadyState essentially does exactly what you want, albeit in a slightly different way under the hood. All changes to the disk are saved on a virtual partition. When the system is shut down, most changes are discarded. Only files saved/modified in specific parts of the filesystem (which you can specify) are preserved. You can choose at shutdown whether or not to preserve changes, which requires entering the password of an authorized account. SteadyState also has some built-in options for configuring group policy-like settings on regular user accounts, so you can, for example, prevent the kids from editing the registry. Using this would be faster (since you're not using a layer of virtualization), cheaper (since steadystate is free, and windows licenses to run in a VM are not) and likely easier to maintain.
They have steadystate for XP and Vista. I don't think Windows 7 is supported yet, but it might be, you'd have to check.