Stitch, I would say you are a professional with a semi-pro camera.
Nah ... I'm nowhere near as good as any pro. I just really dedicated myself to learning all of the ins and outs of my camera even before I actually bought it! There are *many* photographers, on this site alone, who are far better than I.
Stitch, I am going to taking pictures of my son and daughter during Track this season, and this will be my practice pictures for Cross Country running.
I going to work on the manual focus, and get a area in focus and set it. when they run past this point, take as many pictures as i can and hope to get a few good ones. During Cross Country this season, they came out blurry on alot of them, the auto focus just didn't keep up, the sports mode seemed to be to grainy.
I will be using manual mode I hope, reduce the ISO, because for one it will be sunny, a meduim aperture setting, fast shutter speed, set the manual focus for a area, and have Continuous shooting on.
Is there something wrong in my thinking here?
I would probably work, but I'm thinking you're making it too hard on yourself. Personally, I wouldn't use full Manual mode for outdoor sports shots because changes in the light (like clouds, etc.) can have a dramatic impact on settings and you don't want to be fiddling with settings as your kids run past!
I'd go either Av or Tv mode with the ISO at 80 or 100 and setting a sharp Av (4.5) or a fast shutter speed (1/500 is probably fast enough to freeze runners, if not, then 1/1000) and let the camera handle the other settings.
Rather then trying to "guess" what settings are going to work, I usually take a couple of shots in P mode to see what the camera "thinks" of the lighting and what exposure settings it's picking, and then choose manual settings for my own purposes from there.
Manual focus can be a pain; you can also 'pre-focus'. Half-press the shutter on the area where the kids will be running through (like on a tree or a fence that's close to the route) and then full-press the shutter when they show up.
Another advantage of pre-focusing is the speed; when pre-focused the S-series cameras are just as fast as (or faster than) most DSLRs! The S3's shutter lag when prefocused is 0.088 sec and the new Canon 40D is 0.061 sec ... only two 100ths of a second faster! It's actually faster than a Nikon D40x, which is 0.095 sec!
Using High-Speed Continuous is probably the best way to get the kind of shots you're looking for.
This is the sort of thing I'd practice before an important meet ... try taking some pictures at practices or just ask your kids to run around the house.

This way, you'll be able to determine if Av or Tv gives you an edge or, if going Manual will work out the best for you.
Just something that i thought i would mention, I use the LCD for everything, I hold the camera about waist level or set it on my knee when knealing. I take pictures of my two year old alot, and this way i don't seem to take pictures of her from the top of her head near as much as i did before.
I find that using the EVF is more stable, however. I only use the LCD for "unusual" pics like really low to the ground or above my head (or the heads of other people) at a parade.
However, I use the LCD almost exclusively when I'm shooting video because I like to watch the actual show (or whatever) and just glance at the camera every now and then to be sure I'm still on the action.