You're absolutely right--children's bicycles with training wheels are good for exercise and entertainment, but they do little to nothing for balance.

In my experience, the best way to teach anyone--children included--to ride a bicycle is to take the pedals off, lower the seat, and let them scoot & coast around until they develop the proper balance. Then, add the pedals, and let them coast, pedal, etc.

For children, there are several popular brand that makes 'run bikes', which are usually made out of wood, and have neither training wheels nor pedals. They are low enough that the child can sit in the saddle and place both feet on the ground, but high enough that they can still propel themselves & lift their feet to coast.

(See http://www.earlyrider.com/, http://www.runbikes.com/, and http://www.likeabikeusa.com/)