I've got no problem with participation trophies for kids.
The kids know whether they won something or not, so they aren't being fooled into thinking they did awesome, especially if you have a separate type of trophy you hand out for the champion and runner up in the league when the kids are old enough to actually keep score of the games.
Having two kids that play sports currently, and having coached multiple teams myself, the point of sports when they are young is to 1) get kids active, and 2) let them have some fun. After those two things, teaching them about the sport and teaching them how to compete and handle both success and failure are secondary lessons that become more of an emphasis as the kids get older, while the first two lessons become less important.
I don't think the participation trophy will keep a kid coming back nearly as much as the experiences he/she had, but it doesn't hurt anything, so I don't understand the outrage. When I've coached teams, I've always told the parents that one of my primary goals as a coach is for the kids to have enough fun that they want to come out the next year and play again. If the leagues I played in quit giving our participation trophies, I would still want to recognize all of the kids I coach at the end of each season and find some way to tell them that I appreciated having them play. The trophy itself just gives you the more formal opportunity to single out the kid and thank him/her for working hard to learn and get better.