Babies and toddlers need two types of music:

Music for Playing

Babies love to listen to music and clap along to songs.  The best music for playing is interactive and upbeat.  Repetitive tunes work best for them; babies and toddlers feel good about themselves when they recognize patterns and know what to expect.  Here are some of my favorites: 

Baby Beluga, by Raffi.  The kids love it and it's fun for parents too:  See Baby Beluga CD's on eBay 

The Wiggles are a very hot group right now (they make DVD's too) -- see why:  Music by The Wiggles on eBay

Walt Disney Records makes a nice series of CD's, called Children's Favorite Songs.  I like Volume 1 best.  Parents will recognize these songs, and kids will enjoy learning them.  find Children's Favorite Songs

Music for Sleeping

A favorite lullaby can be as comforting as a familiar blanket for a baby.  Gentle music helps babies sleep at home, in the car, or anywhere.  I'm recommending music that is pleasant for adults to listen to also -- especially since you may be hearing these songs over and over:

My all-time favorite, Return to Pooh Corner by Kenny Loggins.  This soothing CD has beautiful songs, and it's nice to hear a low, male voice after a day full of high-pitched giggles and squeals.  find Return to Pooh Corner

Nicolette Larson has a lovely anthology called, Sleep, Baby Sleep.  find Sleep, Baby, Sleep

Finally, for some variety in rhythm and tones, check out African Dreams.  find African Dreams