Brad and Jake: Thanks for yor thoughts. The kern-mantle climbing rope was already on order that day so I used a static line from my SRT caving days for my 47-pound kid to be belayed. Cavers routinely put two or three adults on a static line and it is much easier to climb with a little weight from below. I prefer the flexility of the kern-mantle and haven't been very bothered by the dynamic aspect of it – there's not much stretch with a grader schooler on it and even an adult doesn't stretch it much over 50 feet. I think I remember there being UIAA spec for a lower limit on low-load stretch in dynamic line.
SRT = single-rope technique. How cavers repel into a caver and climb out with ascenders. Needlessly touching the cave damages the cave and is bad form.
As to the top anchor: It's a 1/2 bolt through 16" of spruce. Backed up with a loop through two other such bolts. I'm not worried about that. I agree securing it to the plywood would not have sufficed.
A biner instead of a rescue pulley is an intersting idea. No need for it with kids' light weight. But for an adult belaying a bigger adult, it would allow an easier descent. I've got anchors at the base of adjacent trees for the light-belayer-heavy-climber situation.
IMO, the reason to make it reasonably safe is for the safety of the kids, not for the legal liability. The neighbor's kids sometimes get injuries on my trees or treehouses. My kids have been nicked up on their store-bought playground equipment. This is Alaska, not California and there's pretty strong legistated protections for land owners who let other recreate on their land. It's sort of like growing up in the 1950's: They play outside a few hours a day and some stuff happens. Obviously, we try to avoid injuries, but not at the expense of fun, exercise, and developing their skills and independence. That said, I DO really appreciate everyone's thoughts and double-checking me on the details.
Editted to add: I do pull down the climbing rope after each use by running some 1/4" nylon cord as a pull cord for the next session. And I ran the whole concept past the neighbor, realizing it was potentially an attractive nuisance for his kids. He was all in favor of it and he (runs an industrial manpower company) and I have brainstormed on some self-belaying equipment, but the industrial stuff is mostly too beefy for 50 pound kids.