That's a tough one. I have 4 kids (ages 3, 5, 7, 9) and they've all asked the question at various points. Our shetland sheepdog died when our oldest was 6, which was tough. Essentially, as an agnostic (me) and a lapsed Catholic (my wife) we framed it as an on-going debate where no one really knows what happens when a person (or family pet) dies. I think it was more of a shock to my daughter that there were some things that grown-ups don't actually know.
We did touch on faith and how some people *believe* they know what happens, but stressed the fact that no one *really* knows what happens. We then had a short discussion about the main ideas (a. you go to heaven or hell, b. you get reincarnated, c. your existence just ends, d. none of the above). I told them what I personally believe, but made it clear that everyone ends up deciding for themselves at some point.
What was interesting is that my wife's side of the family is for the most part, pretty religous. A few months ago, by daughter was talking to my wife's Aunt about God, and kept asking her why she believed in God. I should mention my daughter is *extremely* persistent and pretty bright. Eventually she got the Aunt to admit it was, "because my parents brought me to church when I was a kid", which I believe is - with exceptions, of course - the main reason most people have the religious views they do.
Anyways, my take on it is that kids are pretty resilient - give them as much information as possible and answer questions honestly, and they'll figure things out. When I was younger (I'm 38 now), I always planned on teaching my kids to question authority and think for themselves. I still try to do that, but it's *much* more difficult when *I'm* the authority.
Back on subject - Mythbusters is a fave for TV, and Asimov's set of science books for kids is *phenomenal* (if a little outdated).