Here's the run down:
We got a 55 gallon with 2 baby oscars (they are less than 2" without fins) Adam found a beautifu piece of driftwood at the beach the other day. It was (what he calls) seasoned. The problem is now it has turned the tank water a wonderful shade of orange/yellow tinted. Is there anything I can do to correct this? Short of taking out the wood and is it harmful to the babies?

It is releasing what is called Tannin's.
Any time you use Driftwood especially when found out doors,you need to a) make sure that it's a hardwood,and b) sterilize it by boiling in water or baking it.
Normally on a new piece of Driftwood,if you boil for some odd hours or soak it a week or so always replacing with fresh water,the tannin's eventually disappear and then your water doesn't yellow up like that.Even sometimes after doing all this it tends to still turn your water slightly yellow.I have a tank that's going through that right now.The only thing that you have to watch,is that it will reduce your ph-which could be a major problem depending on what your ph is when you start ,and what your fish are and require.
Water changes help alot but until it bleeds out completely,you'll probably still see yellow for a time.

Well, we took it out today. We just couldn't stand the yellow water anymore. A 50% water change and hopefully it will start clearing up. Any more thoughts?

i was always told that one oscar needs about 50 gallons of water so your tank might be too small as they grow and they grow fast. but they are pretty tough fish the yellow water probably wont do anything to them from my experiance they arent too picky about water conditions. at laest mine werent. i hope i helped