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I don't think it hurts to learn on the fretless. It would probably be a lot easier to learn on a fretless with lines (mine doesn't have lines, and I wish that it did). I think either scenario has it's limitations. If you start on fretless and move to fretted, you're likely to find the frets confining. If you start on fretted and move to fretless, you'll have to contend with new ways to create vibrato, the whole issue of intonation, and, if you're ever going to sound like you're playing a fretless, the habit sliding into notes.

The nice thing about learning on fretted is you don't have to worry about intonation issues (so long as the bass itself is in tune and intonated). But, really, I'd say pick the one you want to play and learn on that. Playing the bass you want to play would be, I think, more fun and more conducive to practice. Squier makes a really decent cheap fretless bass, BTW. If your kiddo is intrested in fretless, it'll only set you back about $300.