The little creamy white miniature flute with no keys in the key of C?
This? That's the bunny.
I guess there's room for difference of opinion, and sure it's not a fully chromatic orchestral instrument, but I think they're excellent little things and a wonderful primer for the concert flute. It is capable of making a sound that is far pleasanter than a piccolo in all but the most skillful piccolist's hands, especially in the bottom octave, with a distinctly flute-ish depth to the tone as opposed to the sound of, for example, a recorder.
Some pages you might find of interest:
The chap at Saunders Recorders' take on the Yamaha fife
http://www.saundrecs.co.uk/fifes.htm (also contains some soundfiles from The Fife Book by Liz Goodwin)
Dean Stallard (flute teacher who posts on flutenet) on using the fife as a beginner's instrument and extended technique
http://www.fullpitcher.co.uk/Dean.htmBasically... unless you're going the route of somewhat more expensive instruments, you're unlikely to get a better sound. I've seen ebonite fifes with keys on ebay, but pitched in Bb and I don't know how well they would translate to the flute - also a Moeck or Mollenhauer (I forget!) "Picco", again don't know how it would translate - also the Picco was approx £70 rather than £5-10! I think the fifes were about £50-60ish, no idea of the quality. It depends what your budget for improvement is as to whether something like this would be a suitable addition, I do think the fife itself would be would holding onto even if you bought something else.
I've tried both the Aulos fifes and also a make from ebay called Ferris which is based on the Yamaha as far as I can tell but with a slightly altered embouchure hole, and the Yamaha is far and away the best out of those IMO, and a good deal more friendly and easy-blowing than either Aulos.
It's possible to get Baroque flutes and Irish flutes, but again you're talking a substantial amount more money, and they're more of a specialised type of instrument rather than something to progress to the concert flute from I think.
For an idea of what a non-expert can get out of a fife, go look on
forum recordings site, about 10 or so items down you will find a recording of me playing a duet of Amazing Grace with myself (

) which was almost a year ago I think. I have the advantage of having played the flute for a LONG time, of course! - but hadn't had the fife long - I hope that maybe it shows that a non-expert CAN get a reasonably nice sound out of a fife

encourage your son to keep working at it and maybe even, crazy as it may sound on a plastic fife(!), doing tone exercises and stuff. It WILL transfer to a flute, and can really encourage the formation of a good embouchure. It might be a better investment to find some more music he can play on it (does he have The Fife Book?) One of the brilliant things about the fife as an instrument for a youngster is that it's such a tough little beast - no keys to bend or break, less delicate even than a recorder, you can drop it, sit on it, heck, you can even play it in the bath! - as opposed to say the Prodigy flute which is apparently good, BUT would set you back the best part of £200-£300 and has most of the same delicate mechanism as a concert flute. If he loves it, encourage him to keep at it

Hope this helps. Sorry, I am not an expert on fifes at all, but it truly is a good little instrument and worth his while especially if he is enjoying it so much.