My daughter is 5. She loves building with Lego and constructed a Christmas tree using Lego on the weekend. Other times she builds houses or playgrounds, buses or boats. She incorporates other toys, like plastic animals or toy cars, into her Lego worlds.
We have a big bucket full of all the base parts, including windows, doors, wheels with axis, and when we get a new set from someone, we just throw the parts in with the rest, rather than trying to puzzle the sets together the correct way. I think Lego should concentrate more on fostering imagination and less about the closely defined sets which are just glorified 3D puzzles.
Their best products are the big buckets which give lots of open-ended options (the girl version does have a nicer colour palette – light green, yellow and hot pink).
My daughter likes the assortment of yellow Lego people we have, except that their hair helmets keep falling off and get lost. I cringe at the the thought of the new hair salon set Lego is introducing.