My oldest is getting more and more interested in magic, which is fun. While I am not really a big fan of magic in the grand sense (making an elephant disappear? puhleeze), I absolutely love "little magic" like sleight of hand and other things like card tricks.
We watch a lot of magic shows on TV with people like David Blaine and Chris Angel. There are a lot of shows on that expose magicians as well and those too are enjoyable. We like to make it a contest to see if we can figure out how tricks are done.
While entertaining, I think that showing my kids that magic tricks are fake gives them a good base for later in life. I never really understood the "awe factor" that guys like Blaine seem to have. I am not arguing that Blaine doesn't have talent, because he does. But the reactions by people on the street over his cheesy levitation trick are ridiculous.
Does it never occur to these people to ask why they have to stand in a certain place? Anyway.
I look at explaning magic tricks to my kids as inoculation for the future so they don't believe in flim-flam. And it is good for them to always question things.
As an aside, if you have never seen Penn and Teller, you should. Those guys are my heroes and they have a permanent gig at the Rio in Vegas if you are interested.