Step 1: Buy the Discovery Kids Night Vision Camcorder
You will also need an SD memory card. Although the camera has a small amount of internal memory, it seems that you can only transfer pictures to a computer if you have a memory card installed. Even a small one will do, with 1GB you can store more than 1000 pictures or 1 hour of video.
Update: When I checked Feb. 6, 2010 the camera was no longer half price at discoverystore.com.
Here is another option if you can't get the Discovery Kids camera cheaply, or if you don't want to modify a camera: