I think the hand-me-down computer is a great idea as long as you're there to monitor them - not because of them getting into precarious situations. We had friends whose 3 year-old son liked to log onto BankOne.com and get into their account because they had clicked the "Remember Me" icon.
We got our 3.5 year old son a leapfrog for Christmas. He loves it. He plays games which appear to mostly develop his hand-eye coordination. He'd love one of the kid's laptops, and we're debating getting one for his up-coming birthday as he's on the cusp of learning to read thanks to some really dedicated teachers at school and reinforcement at home.
While I don't think the technology is necessary, I don't think it can hurt. But, I've found that simple acts like reading with them, reinforcing things on walks/in the car go a long way in helping them learn.
We went to dinner with some friends the other night at their house. We pulled-up, and our son saw an iron decoration with "B" in the middle and told us "B is for Beadle" - then, he played his Leapster.