Organizing and managing Lego with kids (long)

I'm not sure if RTL is still active, but here goes (please point me to
another list if RTL is no loger active):

I know the subject of sorting, organizing, and storing Lego has been
discussed in numerous threads, but I haven't seen anything that talks about
these issues as they specifically relate to kids and reducing Lego chaos.
We have a modest collection of Lego sets (no repeats -- somewhere around 25
sets, some large, some smaller), and managing their use with and by our kids
is an unending, time-consuming challenge.  In particular, pieces get strewn
about the house (within reach of very small hands and mouths), others are
misplaced or lost (perhaps to the vacuum cleaner or down the heating ducts
or brought to school never to return), and others are broken.  I find myself
constantly policing, managing, and doing inventory of Lego.

Perhaps our children are too young to play with Lego (but I doubt it; ages
9,7,5, not counting the newborn).  I just hate to think that some of our
sets might no longer be complete, and therefore not buildable in a strict
sense.  I know I'd be upset if I'd begin a model only to realize halfway
through it that pieces are missing (especially when it's a cool Technic).  I
grew up playing Meccano, and I would store my parts in their original box,
assemble complex models with many parts, play and experiment for a while,
and then return all parts in their original box.  Perhaps I'm trying to be
too strict with the Lego, and I need to lighten up (what's a few missing
pieces, really?)

On this note, I've found that organizing and storing Lego by sets works best
in our house (keeping the above comments in mind).  I keep each set in its
own bag, with building instruction booklet(s) and a list of all pieces for
that set, noting any that are missing -- and every single one of our sets
has missing pieces.  Web resources and a colour printer have been wonderful
in this respect.  Each child may take out one set at a time (two if I'm
feeling particularly type-B that day!)  I encourage my kids to count the
pieces at the beginning to ensure they're getting all the required pieces
(or as many as possible, or at least that they're OK with building with
missing pieces).  I also encourage them to count the pieces when they're
done -- but this never actually happens, partly because they can't be
bothered to do it, and partly because the projects wind up morphing and
mating with others, including the Lego tub that's kept around for free play.
The result is a handful of sets (or parts of sets) scattered throughout the
house, and me having to do inventory every so often, and acting like the
Lego dictator/police/librarian (and *no*, I don't enjoy that).

Organizing Lego by sets does have its drawbacks: the creative juices don't
flow as well when limited to a set, as opposed to sitting in front of a wall
of storage bins and letting your imagination soar (we're nowhere near having
that many Lego -- yet).  On the other hand, organizing by sets simplifies
the set-by-set inventory.  However, I do sort pieces by type and size when I
do inventory and when redistributing parts in their respective sets.

If you have any suggestions on how to manage Lego with kids -- sorting,
storing, use, misuse, preventing or dealing with loss of pieces, etc. -- I'd
love to hear them.  Yes, I know, the first suggestion (one I've already
worked out) is to be less anal retentive, to chill out, and let kids be kids
(not as easy as it sounds, believe you me!  Especially when the broken/lost
piece is an irreplaceable part).

I apologize for the wordiness, but it's been on my mind for a while now,
with no workable solution in sight, and I just had to get it out there.

Cheers, and your suggestions and comments are much appreciated,

Patrick (who is oh-so-very type-A)