We live in Germany, where every child has a balance bike before they get a proper bike (it´s just the norm here), and most kids can then ride a proper bike without stabilisers from the age of 4. We bought our first daughter a bike from Kettler (speedy 12.5") for her 3rd birthday - it´s a metal one with a brake - just found it here:
http://www.towerstoys.co.uk/towerstoys/final.asp?id=1452&manufacturer=Kettler
I looked into it quite a lot before buying, and bought the one recommended by the German equivalent of "Which". It cost me around 40 Euros. From their test results, they found that kids actually prefer the metal ones because they come in different colours! In addition, the wooden ones are a lot more money here. They also said that the brake wasn´t necessary as it´s generally quicker and thus safer for kids to brake by just putting their feet down. Obviously, this isn´t so great for their shoes but I can honestly say my daughter never used the handbrake (mind you, there are no big hills around here either). She transferred to a pedal bike at around 3years 8months and was away within a couple of hours of starting - without stabilisers - I was gobsmacked!! The pedal bikes here all have backwards pedalling to brake, so she still doesn´t use a handbrake at the age of 4.5!
My youngest daughter was so desperate to start cycling too, we got her an extra small balance bike at the age of 18 months from a brand called "Puky", which is the biggest selling brand in Germany (more expensive than Kettler though). Just like this one, but in red:
http://cgi.ebay.co.uk/Puky-Learner-Bike-Medium-LRM-Ocean-Blue-4056_W0QQitemZ260508806296QQcmdZViewItemQQptZUK_Bikes_GL?hash=item3ca788ec98
She has just turned 2 and is a demon on the thing - she can really shift, so much so that I can´t take her out on it now as I´m 27 weeks pregnant with twins and I just can´t keep up with her anymore! She is already asking for pedals as she sees her older sister cycling, but that will have to wait a bit ´cos her legs are still too short!
On the other hand, I was out with a friend of mine at the weekend whose 7.5 year old wasn´t intersted in the balance bike when she was younger and therefore still can´t ride a proper bike. They were trying to teach her at the weekend - she can pedal fine, but she does not have her balance yet at all. In the end we suggested removing the pedals to turn it into a balance bike so that she could learn. It´s much easier to learn the pedalling once you´ve got your balance than the other way around.
Good luck with whatever you decide, but for what it´s worth, I think balance bikes are worth their weight in gold!!
Just wanted to add that I would definitely get a 12.5" for a 3 year old. The Puky is only a 10" and although it says from 2yrs of age, my 25 month old can already ride the bigger one.