The advent of Generative AI (GenAI) has raised discussions about its effects on individuals. However, little is known about its impact on children’s creative collaboration, despite its importance for social and cognitive development. We examined GenAI’s role in children’s creative collaboration through five co-design sessions with 28 children (ages 5-11) using diverse GenAI tools (text, image, video, voice); 17 parents participated in focus group interviews. Our findings show that GenAI can foster positive social dynamics by enabling “Human vs. AI” teaming and children’s co-creation with shared ownership. However, GenAI disrupted collaborations when roles between children were unclear, AI ignored group dialogue, and AI dominated children’s agency. Children and parents envisioned socially attuned AI that could play an “older sibling” role–scaffolding while allowing playful disagreement–while raising concerns about children’s overreliance on GenAI. This work advances understanding of GenAI in collaboration and proposes design implications for designing AI systems that support child-centered collaboration.