We have stayed both on and off the property and I would definitely vote for staying on-site. The money you may say in an off-site hotel isn't worth the time of traveling back and forth to that hotel. And like so many others have already said, staying on-site you feel that Disney magic from the moment you arrive.
Many off-site hotels offer free transportation to and from the parks but before you jump in thinking that's the same as what Disney hotels offer, make sure it's unlimited transportation and that it isn't scheduled and/or shared transportation. Many off-site hotels offer the transportation but only at certain times. That doesn't help you out much if you want to leave the parks at 2:00 and the bus doesn't come until 4:00! Disney buses circulate conitinuously. Also, many off-site hotels "share" their transportation with several other hotels, i.e. one bus for several hotels going to and from all of the parks. This can be very time consuming if you get on the bus and then have to go to all of the other parks and maybe two or three other hotels! And lastly, many of the hotels that offer transportation don't even have buses, they use vans. If you get a family like ours (three adults and three kids) in front of you

there's a good chance there might not be enough room for your family and you'll have to wait for another van to come by! Driving yourself is an option since you'll have your own car but you'll have to pay for parking each day (about $7) so factor that into the amount you're "saving" by staying off-site. You lose so much time staying off-site that it really isn't worth the $$$ difference, especially now with the value and moderate resorts that Disney has.
As far as food goes, we don't do the dining plan simply because it doesn't look right for our family. However, we have found that you can eat very econmically at the parks and at most of the hotels. Disney is very generous with portions and there is nothing at all wrong with sharing meals. Disney seems to be used to this. Sometimes we do some sharing, sometimes we don't. Even if we aren't sharing we can still eat without paying a fortune. If you're not already familiar with it, there is a site called All Ears Net. It has all the menus and prices for all the retaurants in the parks and the hotels. Spend some time looking over the menus and you'll see you can eat at some places for the same price as off-site restaurants. The link for All Ears Net (for the menus) is:
http://www.allearsnet.com/menu/menus.htm
Good luck with your decision and hope you have a wonderful time!!!
