If you go in October, it will be warm enough to swim. December, it could get pretty chilly, but kids will want to swim anyway.
As for your kids, they'll love either one of the places you go. However, at 10 to 3, they're just about the perfect age to still enjoy the HoJo water park. It's fairly small and great for kids at that age. A few years older and your 10yo (who would be 12) would consider the water park a little childish, IMO. But you're hitting it at the perfect time. And the rooms are pretty big for a family of 4 or 5. I would recommend spending the extra money for the Superior room with a view of the parks. Your kids will love that more than the water park.
As for the Disney hotels, they're very very pricey. The advantage is that you can get into the parks an hour early. But if your kids are like mine, you'll be luck to make rope drop at the normal hours. The GCH is very close, but you'll have to get a second mortgage to afford it. The DLH is still very pricey, sorta close, has the best waterslides of any Disney resort in America, and feels very Disney. The PPH is the same distance to the parks as HoJo is, costs more, doesn't feel very Disney, but does have one cool waterslide.
I don't what your $$ situation is, but if it's similar to my middle-class income, then HoJo would be a great pick. Of the 8 hotels I've done in the area, it's the only one I've returned to. That has to do with location, price, water park, cleanliness and customer service.