If you haven't been to Hawaii (ever, or in a while), I agree Waikiki is a great place to start. Last year we used hotel points to stay at the Royal Hawaiian (the pink hotel in the picture above) and loved it! We did a sunrise walk/hike up Le'ahi (Diamond Head) and had our "city" vacation before going to Aulani. (Also snorkeling at Haunama Bay, going to Kualoa Ranch, are all MUCH more convenient from Waikiki).
We also looked at going to a different island - Maui, Kauai or the Big Island. We've been to all of them, but not with kids old enough to remember. But given that this was our first trip back in a while, we decided not to island hop for a trip where we were on the ground for 10 days only. Next time ...
Edit: Also, I'd always do the more active part before Aulani. Aulani the resort is restful and fun and I'd be spending my time making good use of my points/$ by using the resort more!