
I have seen many children's books that are written as if they were poetry. The text on each line is centered, instead of being in paragraph form. Sometimes the beginning of the line is capitalized and sometimes it isn't.
Yet, if you look at classic poetic stories such at "The Night Before Christmas" or "Bambi," you will notice that even those books are in paragraph form. (I have a copy of "Bambi" that is a poetic rhyme.) I think that is important to consider as an author. To me, it also looks more professional to be written in paragraph form, unless it truly is a poem. And, just because a book is written in rhyme, doesn't mean that it is a poem.
More importantly, I believe that keeping children's stories in paragraph form is important from an educator's point of view. A children's book is a model for children who are learning to read and write. If they see a book written with centered text, children will assume that it is the proper way to write and will be more apt to write like that themselves. Children will not understand that the proper way to write prose is in paragraph form.