This is one of the most common questions I get from parents at the first lesson.
While I believe that listening to the pure sounds of piano strings cannot be replaced by anything electronic, I actually suggest that parents wait to make the big investment in a real piano. Just like adults, children are [
usually] very excited and motivated when starting new things; piano is no exception!
I encourage parents to start out with something very simple and cheap, a small electric keyboard; not a toy, but a small scale electric piano. I would even go as far to say check out a few garage sales or ask a relative if you can borrow it for a couple of months. Parents should then wait several months, to observe whether this is just a passing interest or whether the child is progressing and committed to long term music lessons.
One of the best ways to find a piano is to contact a local piano tuner, and ask if he knows of anyone selling a piano. My favorite tuner gave me these tips to pass along to used-piano-shoppers: Never buy a piano that is out of tune (sounds kind of "honky"), or a piano that has been stored in a room with extreme weather conditions (drafty room, garage, close to a window, etc.).