Some good beers can be made with Extract and kits. Granted, they'll not be as good as a well-fashioned all grain, but they'll still be excellent compared to 99% of what you can buy in the stores.
At the same time, unless you do a lot of homework before jumping in the deep-end with AG (all grain), I would recommend you cut your teeth on a few batches of extract before moving to AG. A couple of advantages; it's cheaper to start out with equipement wise, 99% of the kit you buy can be used when brewing AG, you don't need to worry about mash profiles, malt choice, hitting temp targets, sparge water temp, stuck sparges, vorlauf and the like. With extract you only need to "worry" about your water, your hops and sanitisation / sterilising.
Before you make your choice take a look at :
http://howtobrew.com/intro.html it'll give you a great over-view on brewing both Extract and All Grain, so you can decide for yourself.
Breakfast Cereals: No. They contain a lot of stuff other than the ingredients you're looking for. Avoid.
You can use wheat, rice, corn, oats, rye and other grains when mashing, but some require treatment of some sort before they can be "mashed" with the malt (rice, oats and corn need to be gelitinised and wheats and rye malted).