^There's a difference between seeing fellow solders die and watching a child you spoke to just 10 minutes ago get blown to tiny bits. Aside from being something of a riff on 'Schindler's List' (remember the girl in the red coat?) the kid is supposed to have come to subconsciously represent all those Shepard couldn't save.
As for why the Catalyst took that form, it's a fair bet that it wasn't a hologram, but was a direct communication with Shepard's mind. While I don't buy the Indoctrination Theory, it's a fair bet that the Reapers got inside her skull through TIM and chose that form from her subconscious.
Oh, I understand what the kid is supposed to represent. I just think if they were serious about having your choices "matter", then tying that ghost kid to an actual loss from the very first game would have made much more sense.