I'm making a basic color picker for my designed-for-children VR animation program (streaming development here https://www.twitch.tv/hamish_todd/videos). Simple question: is it a good idea for "eraser" to be a "color" in my color picker, rather than its own button? Veeeeery limited number of buttons on a VR controller and I want to minimize menus!

This is tough! I think it depends a lot on how you explain that behaviour. I've used a lot of professional art tools where you can erase by selecting an "X" color — Flash, for instance. The audience being children probably helps here too, because if you explain "do this to erase" they won't likely push back with a lot of "well that's not how I'm used to working in other tools", perhaps.

It really depends on how the eraser works. I'm assuming it "replaces" colored pixels. Is that right? If so, displaying it as "fill the space with clear" could be intuitive. Where it could get very messy, is how it goes into the color picker. Inside a wheel gives you a broken color model. transparent (0 opacity) and erase have different meanings if you have any options between 0 and 100%. Maybe as an explicit preset "color"? Though I don't know if that gives you a new button problem.