Danger of inserting knitting needles into an electrical outlet
Up to this day, I don't know the answer to the following question: Why the plastic tube connecting the metallic needles burned right in the middle? I assume the plastic tube had zero conductivity.

I'm guessing that it had a cable through the middle of it for strength, and the plastic tube on the outside protected the knitting from the cable.

Additionally, how come the little kid survived? Did the current split between two paths: hand-chest-hand and needle-tube-needle?

Unless a fuse blew, you were exposed to 220V.  But 220V isn't instantly fatal -- you have to hang on for a while.  And whether it's fatal depends on skin conductivity.  Probably what happened was that your hands were dry, and your reflex to snatch the needles out of the socket was aided by the electric current contracting your biceps (which are stronger than your triceps, so you'd tend to convulse with your hands going toward your chest).
I'm sure it's strongly dis-recommended in any official channel, but when I was growing up the recommendation was that if you had 120V circuit and you didn't know if it was live you touched it with the back of your hand -- because if your hand closes that way, it closes away from the wire.  Touching a wire with your palm would make you involuntarily grab it, which leads to prolonged exposure to the current, and a higher chance of electrocution.