Hi QP!
FHE has been a real struggle for us with small kids, but the thing that worked best was planning short lessons. The lesson doesn't have to be an hour long. Just do whatever fits your kids' attention span and then go have fun. :) We like to do activities that go along with the holidays. Every year we go to this cool garden of Christmas lights and the kids love it. In October, we'll go to a pumpkin patch together, maybe spend another FHE making our Halloween costumes after our lesson, and treats of course.
One time we had a lesson on honesty when our kids started lying to us. During the lesson, I kept telling the kids there was a spider on the wall behind them (don't do this if your kids are terrified of spiders - mine aren't) and after a while, they stopped looking. I asked them, "Why don't you believe me?" My son said, "Because you keep lying to us." I said, "And when you lie to me, I don't believe you anymore." It made a pretty good impact on them.
Even if you don't have a lesson planned, you can still call it FHE. Once you make the habit, your kids will ask for it when they get older. This is really nice for me, especially since we rarely had it growing up with my dad not being involved. Once we were older, we weren't really interested in having it, so it's cool seeing how kids can really get into it. Tonight we went back to school shopping, which wasn't that great, but it was something.
Here's a funny idea. Some friends of mine had a lesson on reverence. They had the kids teach a lesson and the parents spent the entire time being really loud and running around. It made the kids REALLY mad and then the parents made their point. I love that idea. We're definitely going to use that one.
When our kids were really little, we would do things like go for walks and find things that God made, like rocks, pinecones, animals, etc. They really liked it. I hope some of those things are helpful.