It was to prove that his devotees had the same fanatical level of devotion as Islamic devotees, and therefore the Muslims would trust him.
A bit of News from a FReeper in Norway a few mins ago about Breivik’s case:
>>>>”BTW. The breaking news right now is that his lawyer is claiming his client is insane.”<<<<
http://www.freerepublic.com/focus/news/2753032/posts?page=116#116
That would also be true, but the castration/kid-execution thing was to prove not merely that the "Knight" was the fanatical equal of the Jihadis but principally that he was "not a EU/US agent."
He could have proved his fanaticalism by executing Muslim children instead, but that would not have convinced Jihadis that he wasn't an agent of what they still see as the "anti-Muslim" EU/US.
From 2nd paragraph of excerpt: "Now what kind of sacrifice would be great enough to remove all doubt that the candidate is not a EU/US agent?"