The "rainbow cloud" my 5 year-old spotted in June merited a blog post and some research. Thanks to Suzi's comment I looked up "sun dog" and found some amazing pictures of other "rainbow clouds."
Based on what I found, it seems we saw a circumhorizon arc. The pictures I found of sun dogs, don't look like what we saw. If you like our little picture, go check out the circumhorizon arc gallery at Atmospheric Optics.
Update 10/21/07: I saw two mor circumhorizon arcs today at about 5:48pm CST. They were near the sun and visible only briefly, one of them only with the help of my sunglasses. Coo.