I'm so sorry dcb - our DD2 died on New Year's Eve when I was 8 months pregnant. Explaining to DD1 (who was 2/8 at the time) what had happened was one of the hardest things we've ever had to do as a family .
I'd also say Winston's Wish is a very good site. IIRC they have some good advice for how to tailor what you say to different ages.
I'm not trying to have a go at thisisyesterday, but most of the advice I have seen says keep it simple and tell the truth - young children can't understand euphemisms and tend to take things literally, hence it can be a really bad idea to compare dying with a really long sleep as the surviving child starts to believe that if they go to sleep they might not wake up.
I was in hospital when we found out DD2 had died and DD1 knew that I had been ill. The line we took was that "mummy and the baby are both very poorly and the Dr's are doing everything they can to help them get better". Over the next few days that was followed by "mummy's getting better but the baby's much smaller and its still very poorly - we don't know if she'll get better" and then "the baby was too little and even though we all loved her very much she was too poorly to get better". We tried to help DD1 understand as best as we could - for our family it was right for her to come into hospital and see DD2, and for her to be present for all parts of the funeral. I'm not sure she understands the permanence of it yet.
We got this book, which has too many americanisms for me (gonna, mommy...), but it was age appropriate and gave us something DD1 can go back to as and when (and although it talks about "angels" we didn't find it overtly religious). We also got this one, but once we'd read it couldn't cope with giving it to DD1 (because its too close to home, and also wan't quite right for our situation). We also got "No Matter What", as referred to earlier and that's been very good.
I think I understand what your saying with your DS's situation and prospects. I was talking with a friend recently who used to work as a nurse for terminally ill children - after seeing what some of them went through, when she was pregnant she had a very definite "no heroics" view should things not go according to plan and we have a very similar view.
I'm sorry if I've gone on too long - I'm just so sad your family are going through this. You're in my thoughts.