I am using the Rosetta Stone with my daughter. She is 2 years, 5 months old. I say "use it" loosely.
Maybe once a week?? Sometimes more often. Sometimes less. But she has to sit on my lap and point to her choice. She retains amazingly well considering how inconsistently we use it!
I like the Rosetta Stone for language learning, just because it will actually teach you to speak the language well enough to converse with someone in that language. Most other methods used for teaching children only teach words/phrases/simple sentences.
I am several lessons ahead of my daughter, but she grasps it better and faster than I do. So if you are learning the same language with your child, they will probably be correcting your speech!!
From my experience, yes, it does work with a young child; they just can't do it on their own until they gain computer skills.
Also, one other observation I have with Rosetta Stone. If you use the testing section that tests your speech, it is almost impossible to pronounce with the same intonation that the national speaker used. Even if you speak with no accent, it isn't exactly the same. I just use the other testing sections if I want to see how we are doing.