Yes i think both Shrek were really funny, they do have a lot of adult humor in them but i think a kid can still enjoy them.
Yes they are making a sherk 3, relase Summer of 2007
From what i have read Sherk and Fiona are now the King and Quenn, they hate it so they inquire her friend Arty (aka King Aruther) to take over, who is still at college. Arthur, Gwenivere and Lancelot will be potrayed as Jocks and Cheerleader. It wouldnt suprise me if we see a baby shrek by the end of this 3rd installment