During the show, children will play four different sets of instruments, including kazoos, which are theirs to keep. Anyplace where there is enough room for children to sit on the floor in a circle, and free from distractions, such as toys.
Most people find the living room works well.
Save snacks and balloons for after the show, as children will have their hands busy playing instruments. Also, for 20 or fewer guests I provide name tags. Plan to have a separate room where adults who want to socialize can do so without distracting the children. That rarely happens, but occasionally there is a child who seems to not be participating. What really makes it work is if the parents sit with their little ones, and sing along.