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I like it.

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My only problem would be it's popularity. I don't know about young kids, but I'm 20 and there were 4 Katy / Katie in my class at school (and even more then that in my year overall).

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Also, since Katherine is so popular, even if Katy is not, there are bound to be loads of Kate, Kitty, Kathy etc.

Katy is really popular in my age bracket. It seems like everyone is going by Katy--although it's typically spelled like Katie.

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My family calls me Kaity sometimes, but I don't really like it. It's too infantile and the name is too closely associated with stuck-up princesses now.