[Note: The following post refers to the re-release of GRRM's novella, "The Ice Dragon", as a children's novel from Tor's Starscape imprint. It discusses claims that the story has been relocated to Westeros and the changes that had to made to it to be suitable for a younger audience.]
Martin was asked about this on one of the panels I saw him on at San Diego Comic-Con. He didn't indicate that it was part of Westeros at all. In fact he said it was based on an old story that he wrote.
He also didn't really say it was a kid's story, but that it was modified to be one. To be specific, he said, "I just had to edit out > the brutal rape and it was good to go." He also said that the editors had pressed him to give them something else along similiar lines, and he couldn't come up with anything with as sweet a tone...