I would use it in a babies room without oils. It is not like a regular humidifier that puts out larger amounts of humidity. But if you want a smaller amount and quieter and even the colored night lights, it would be perfect.
Most people use Lavender Oil in their diffusers for help with sleeping. I personally like the Aura Cacia blends such as "relaxation". I pretty much have my diffuser going non-stop when I am home. I believe there so many benefits to using essential oils.