We bought my daughter her 12" from REI and it has held up really well and about to get used/abused by my younger daughter. It was on sale, the last years model.

I found a nice 16" Trek Jet on Craigslist for a friend of mine's son and it looked barely ridden. It was at his Mom's house and only got 50% ride time...she sold if for $50!!!
You can find decent stuff on craigslist you just have to jump on it fast. With some simple green, sponge and some lube you can really do amazing things to a used bike.

As far as buying a good bike...you like bikes so that probably means your son is starting to like bikes. Start it off on a comfortable note and go with a bike from the LBS. If you can afford to spend an extra $50-$75 dollars go for it I don't think you will be disaponited.
Good luck and make sure you take lots of pictures of him on it under the tree!