I don't know the story, but, Carbon Monoxide (which was ruled out) would have been my first guess.
My second guess would be mold (description of symptoms resemble Fusarium)...since mycotoxins are allowed to exist in dog food: dogs can harbor some pretty nasty stuff. If a dog is suffering mycotoxicosis and is shedding spores in its saliva/urine: smaller respiratory systems (e.g. children) would be at a huge disadvantage. Even a healthy dog urinating on a rug repeatedly in the same spot can grow some toxic pathogens relatively fast.
Without more information it could be anything really though: maybe the dogs and kids all sat around together and ate a bad batch of crayons.