Rolex has every right to protect its trademarks, but the solution they have proposed is not the only way. The claim that Rolex lawyers have made, that a reasonable consumer will be confused, and come to believe these children's clocks are made by Rolex, is absurd. Rolex clearly thinks their customers are complete idiots based on this.
Rather than force this company to change their name, they could simply request a disclaimer, that these clocks are not affiliated with Rolex. Companies do this all the time on their web sites with respect to Rolex, and Rolex is fine with it. The manner in which Rolex is enforcing their rights is the issue for me personally.