THERE'S MORE to children's records than Sesame Street educational ditties and Walt Disney soundtracks. Kids' music has become big business, big enough to allow for some fine-tuning into specialty markets.

Just in time for the holidays, here's a sampling of some newly released, unusual records and tapes aimed at the younger set. Many were recorded right in our own backyard by the growing legion of artists and producers in and around Washington.

PHIL ROSENTHAL -- "The Paw Paw Patch" (American Melody AM-104). Former lead singer for the Seldom Scene, Rosenthal has moved to Connecticut and set up the American Melody label to record acoustic songs specifically for children. This collection, subtitled "Favorite Children's Songs," is a primer of songs every kid should know, in sprightly bluegrass and folk colorings. Recorded in studios in Silver Spring and Connecticut, the arrangements are simple and eminently sing-alongable. Along with such kids staples' as "Six Little Ducks," "Mary Had a Little Lamb" and "Polly Wolly Doodle," there are lots of action songs. They include "Skip to My Lou," "Looby Loo" and that tipsy classic, "I'm a Little Teapot." Some of the songs are paced a little more slowly than usual, but the advantage is that very young children can learn the words more easily.

JONATHAN EDWARDS -- "Little Hands" (American Melody AM-102). Well-known local singer/songwriter Edwards turns his considerable folk and country-rock talents to music for children with a mix of five originals and five traditionals, including a lovely "Winkin, Blinkin and Nod" and two closely harmonized Peter, Paul and Mary standards, "Stewball" and "Red Light, Green Light." Although a couple of Edwards' own compositions come close to cloying (including the title song about his baby's hands), the sound is, for the most part, as winningly wholesome as the Edwards' family photos on the jacket. One standout is the satisfyingly gruesome "Flies in the Buttermilk," about germs swimming around in the milk. Kids will love the syncopated bass rhythm and the gurgling groans backing up the stomach-churning lyrics. The last song notwithstanding, this album leaves a pleasant taste in your mouth.

VARIOUS LOCAL ARTISTS -- "Grandma's Patchwork Quilt" (American Melody AM-103). This children's sampler is destined to be an heirloom, with songs by Jonathan Edwards, Cathy Fink, John McCutcheon, Larry Penn and Phil Rosenthal and his daughter Naomi. Fink starts the music rolling with a zippy "Zip-A-Dee-Doo-Dah" and ends the album with a kick-up-your-heels "Buffalo Gals." Edwards contributes a clever, multi-stanza tale of how the "Three Blind Mice" got that way and how they were rehabilitated. Rosenthal's "A Duck Named Earl" is rollicking silliness with some fancy picking. Gravel-voiced Penn sings the title song, which he wrote, featuring harmony vocals by the whole Rosenthal family. His "I'm a Little Cookie" is also a notably sweet and simple song about and for disabled kids. But the most winning cut is "Awful Hilly Daddy-Willie Trip," attributed to McCutcheon and his almost-three-year-old son Willie. Father and son "co-wrote" the song on a loooong car trip through the North Carolina mountains. It's charming and heartwarming and every parent's eyes will mist over. For kids who like to stare at the album cover, there are lively sketches by Dave Kiphuth to match up with each song.

MICHAEL STEIN & BRYAN SMITH -- "Ride Through the Solar System" (Caedmon CPN-1804). Stein, known to local young audiences for his school performances, and Smith, a former member of the Navy's Country Current bluegrass band, team up with a constellation of local musicians that includes Pete Kennedy, Cathy Fink and Marcy Marxer, to come up with a funny, engaging and musically first-rate children's tape. The story is about Amanda and her little brother Jake who hop aboard Halley's Comet one night for a whirlwind musical tour of the solar system. Fred Newman turns in a stellar performance as a one-man cast and sound-effects maker. Along the way, the space travelers are entertained by the music of the spheres, which ranges from reggae to bebop to old-timey country to good old rock 'n' roll as in "Jupiter," sung by the planet and its "backup vocal group of 16 moons." Not only are the songs fun, you may even learn something.

PATTI DALLAS & LAURA BARON -- "Good Morning Sunshine" (Golden Glow C-102). These songs are recommended for children aged eight and under, but their appeal is universal. Sung by Laura Baron, a Silver Spring songwriter/singer and Patti Dallas, Side One's songs are set in a magical, pastoral world of harps, flutes, oboes, recorders and calliope. There's an unabridged version of "London Bridge" accompanied by harp and flute and a hauntingly memorable "ABC Song" with hammer dulcimer accompaniment. The songs run a quirky gamut from Elizabethan madrigal to the "Hokey Pokey." Side Two sets familiar nursery rhyme songs in unfamiliar musical settings, with brassy trombones, some jazzy clarinet and sax, and accordion. Baron's youngish pop voice blends interestingly with Dallas' more mature, vibrato folk soprano, bringing to mind an ideal pair of kindergarten teachers.

THE KIDS ON THE BLOCK -- "C'mon Along, We All Belong" (Kids' Records KRL 1024). "The Kids" are puppets who have appeared in schools around the world in a program conceived by Alexandria educator Barbara Aiello to sensitize kids to people with problems. This album focuses on disabled kids, with a story about an elementary school's reunion show featuring young performers who are blind, deaf, wheelchair-bound or wearing leg braces. The songs are upbeat and engaging as they lay to rest some stereotypes about the disabled. This is kiddie rock with a message, which is, in the words of the theme song, "Kids Are Different." The album jacket introduces the puppet characters and there's a lyric sheet and workbook.

PETER ALSOP -- "Stayin' Over" (Moose School Records 002). Another music-with-a-message album, this is the brainchild of California educational psychologist Peter Alsop, who also writes songs, sings and plays (the guitar, autoharp, bowed psaltery, dulcimer, glockenspiel, harmonica, nose flute, wooden spoons, etc.). He's joined by a chorus of school kids who get together for a sleepover during which they grouse about parents and problems. There's a worksheet with lyrics and chords and exercises as well as discussion suggestions for the family. What saves it all from being too clinical is the refreshing irreverence of Alsop's lyrics, which kids will delight in. Parents, too. For example, this endearingly candid lullaby: "Go to sleep you little creep / It's time to get undressed / You're so cute when you're asleep / It's when I love you best."

VARIOUS ARTISTS -- Stories for Children (Windham Hill). Here are four new story albums in the high-quality Windham Hill series that pairs actor narrators with original and traditional music. On Hans Christian Andersen's "The Ugly Duckling" (WH-0705), flamboyant rock singer/actress Cher emerges as a warm, unaffected storyteller with a calm, clear voice particularly suited for very young listeners. And the pastoral background music featuring celtic harp and cello is entrancing. Jack Nicholson does Kipling justice on "How the Rhinoceros Got His Skin & How the Camel Got His Hump" (WH-0704). Nicholson's distinctive drawl is attention-riveting and Bobby McFerrin's original music is weirdly wonderful. Jeremy Irons is not successful in his telling of Andersen's "The Steadfast Tin Soldier" (WH-0702). Even for a child who's grown up watching "Masterpiece Theatre" at her mother's knee, his diction is too, too plummy, disdainful and difficult to follow. Glenn Close, on the other hand, successfully adopts a regal voice for Andersen's resplendent "The Emperor and the Nightingale." Her voice is appropriate to the story's rich descriptive details. Mark Isham has composed an evocative score using oriental gongs and percussion and a hauntingly beautiful flute theme for the nightingale's song.