Harv,
I have a 3 year old and judging by his interest in things, I'm not sure the time and energy spent on the block set would be offset by his energy. I think building something a little more simple (toy box or chair with his name in it, stool, kids table, etc.) and letting him help with handing you a nail or screw or something would be better. Believe me, my 3 year old loves to be in the shop with his pappy (my dad) and loves to get his hands on the DeWalt 18 Volt drill /forums/images/graemlins/grin.gif (smart kid) or hammer, adjustable wrench, etc.
Case in point, I just finnished putting up a 12 foot tal swingset with a rope climb and swings. It was more for the 9 year old, but I figured he would want to swing too (they have a smaller swing set too). Anyways he picks up a piece of the 3/16" chain left over from the swings (about a 5 ft. piece) and proceeds to ask me if he can play with it. He drug that chain all over the place (I kept a close eye on him even after I warned him I had better not see the chain near his neck). My point was I spent several hundred dollars on a swingset and he was playing with a piece of 5 ft chain (50ft. pail from Harbor freight for $27).
I've always found that time is the best gift for small children. My 3 year old would follow his pappy around out in the heat instead of sit inside in the AC watching cartoons or playing with toys.