Off property, any reco's? Last time we used Regal Palms and loved it, but the reviews of it now are a bit scary.
We stay offsite, and will continue to do so until we can afford the amenities we enjoy onsite. You have to ask yourself what are the things you need/want to enjoy your vacation. I have stayed several places offsite (house, hotel, sheraton vistana), but since I stayed at Wyndham Bonnet Creek I am not staying anywhere else. The location is amazing (inside Disney property, next to CBR). The pools are awesome (there are at least 5). You have access to the facilities of the hotel that is attached, which includes an awesome fitness center, a spa, a top class restaurant and a couple of family friendly restaurants. There's a playground, splash pad and two lazy rivers. Last time we could see the Epcot and Fantasmic fireworks from our balcony. You have to have a car, but you are in the parks in no time (It took us 15 minutes to be inside Epcot), which is important having a little one. Specially if you are considering taking a break and coming back.
The main issue for us on vacation once we had children, is that to enjoy ourselves we think having at least two separate spaces is a must. So you can put the kid to bed and have a place to relax with your significant other.
With kids that age you cannot spend all day at the parks anyway, so it is important you have a room that is comfortable, because you are going to spend more time in it. For us that means at least a 1 bedroom, or 2 ,a full kitchen and ideally a nice balcony.
In terms of the Disney perks, we know we won't take advantage of most of them. With small children you are less likely to use the extra magic hours. The extra time for ADRs does not make that much of a difference, I could book all the meals I wanted on our recent trip. DH in general does not do quick service, but a "Deluxe" dinning plan will be much more food than we will ever eat, so it does not make sense to get the dinnning plan (IMO the dining plan is not worth it with kids 3-6). Waiting for buses can be a pain with toddlers (and we sort of hate it too), so unless we can stay on the monorail the perks of Disney transport are nonexistent to us. The perk I really wish I had was the 60 days for FP+.
We went a month ago, a 2 bedroom/2 bath presidential suite with an open concept living/dining at WBC (this are the upgraded ones and are awesome) was the same price as a little mermaid room (with only two full beds!) at AoA. There was really no contest for us.
One last tip: You are right that at that age MK will be your main destination. If you stay offsite and have a car, park at the valet at the contemporary, it is only $4 more. We made it from WBC to the door of MK in 20-25 min. Beats a bus anytime and you don't even have to park your own car (and then forget where...LOL)