Wow, sounds like you are very well organized, and have a fantastic vacation planned for your family!
I wouldn't worry too much about the bus situation. We never rent a car when at WDW, and always fly (although we are going to try driving this summer). We rely on Disney transportation while on site, and so far it has been fine. Yes, the buses can be crowded (especially if it starts to rain and everyone is trying to make a quick exit from the park, or at park closing), but I have travelled on them with babies as young as 4 months, and also when I was 5 1/2 months pregnant with baby number 2. We always have a stroller with us as well. I think that as long as you are prepared that you might have to stand, or wait for the bus to arrive you will be fine. With regards to renting a car, I guess I would look at how much it is going to cost and then see if I would rather spend that money on something else (like tickets to
MNSSHP). Yes, the rental car would be convenient to get to the parks, but really it is just going to sit in a parking lot most of the time, as it doesn't sound like you are planning on going off site for meals, to go shopping, or to visit other Orlando tourist attractions. Keep in mind, that if you really hate the bus, you can always call a cab (they have vans) to take you where you want to go. My sister, BIL, and their 4 kids did this a few times on a recent trip - they said that it wasn't very expensive, and allowed them to skip the bus trip a few times.
We went to MNSSHP this September for the first time, and absolutely loved it! We have been to
MVMCP and The Princess and Pirates party (when they had it a few years back). Without a doubt, MNSSHP was our favourite, and we are not big dress up for Hallowe'en people (yes our kids dress up, but my husband and I don't). Our kids were also a lot younger than yours (3 years, and 10 months). I would love to take mine back when they are older, and can really appreciate it. The parade is awesome, and the experience of trick or treating was really cool. Also, seeing so many people dressed up at Magic Kingdom is not something that you get to experience any other time. We didn't wait to see any characters while at the party (as some of the lines were really long), and my son is hit or miss with the characters. We enjoyed watching the parade, and walking around the park taking in all the sights and sounds.
One other suggestion if your kids are into characters. Book a character meal (or 2). That way you get to enjoy a meal, and have the characters come visit you at your table. We always do at least one per trip. That way our son is not asking to go see the characters every time we see them in the park (that can eat up a lot of valuable park time!). Since you will be on the
DDP, it is also a great way of maximizing your value, as these meals are usually more expensive. We love Chef Mickey's and Tusker House (for breakfast).
It is so exciting planning a Disney trip isn't it? I never get tired of it. We were actually there 3 times over a 7 month period in 2011, and I still can't wait for our August trip!