Re: eBay scam?
Right... your Fender. Most likely a dry solder joint on the input I would say. Plug it in, strum the strings and wiggle the lead in the jack socket at the amp end. If that makes it better/worse then that's your problem and it needs re-soldering. If not try the same at the guitar input. That may need tightening or maybe re-soldering.
As for the distorted sound, there should be a button or a switch that says Drive or Drive Select, yes? This activates the drive channel. In the Off or Out position you should get a clean sound at all volume levels, controlled by the Normal Volume knob. In the On or In position you should get an overdriven sound, controlled by the Drive Volume knob.
Hope this helps. Glad your kids love it, it's one of the best things you can give them.