Two separate issues here:
“The Mozart Effect” is the cute name given to a theory proposed a few years ago that simply listening to various forms of music actually increased IQ. Only the original proponent has been able to reproduce her results consistently and a report in this month’s Science (I believe) works really hard to discredit the idea.
It has been shown that children who play a musical instrument seriously develop better in a couple of ways that I can never recall when I need to (hand-eye coordination? speech development?). “Better,” of course, is a relative term. Do they develop better than they would have without that activity? Or is there simply a statistical correlation between children engaging in that activity and children performing well in another activity while other factors have not been carefully ruled out, yet? I dunno.
It certainly will not hurt children to hear good music. I will (anecdotally) attest to one benefit of having children hear a wide range of music: my kids like a great many more styles or genres of music than their playmates. At out house, they hear new Rock, old Rock, Celtic, Folk, Symphonic, Show tunes, Blues, (a little Hip-Hop, a little Country, a touch of Jazz), and they like it all. Their friends who hear only one variety of music tend to like only similar varities of music.