We love, love, LOVE staying off-site! Windsor Hills is fabulous. Sooo much nicer than cramming into a hotel room! We're seriously considering selling some of our DVC points--we like staying off-site THAT much!
Now, we're a family of 6, so we would need 2 hotel rooms, but it still would be a cramped situation in a hotel.
A few other thoughts--even if you don't want to cook and clean on vacations, just doing simple breakfasts can save a ton of money. We also like simple Mom-prepared meals (like spaghetti with jarred sauce and frozen meatballs, or sandwiches--that sort of thing). The kids like being able to snack at will. Heck, DH likes being able to go in the fridge and grab a lemonade or beer to enjoy by the pool.
For our family, the relaxation of off-site is priceless. having a pool literally 5 feet out the door is a huge draw. Other popular items--DD15 likes having her own bedroom with a private bath, DS12 likes the free movie and video game rentals. There's also free wi-fi where we stay (we do a 4BR house, it's ~1200 a week--you could go cheaper, definitely).
We've also really enjoyed expanding our "Orlando horizons" if you will--we've done Universal, Sea World, Gatorland, and a number of off-site restaurants.
We have annual passes and
AAA, so we get free, up-close parking.
Now, I'm not knocking staying on-site. Our next trip will be 1 week of each. A 2BR DVC villa is roughly the same size as a 2BR codo or townhouse, and you do have the benefit of Disney transportation, EMH, etc. But, you pay for that--just understand that the cost is included. For us, a 2BR villa rental would be $3500 for a week--for much less space than we get off-site (that's based on $10 a point, to go in the summer).
Anyway, good luck with your decision. I would say, if you're a party of 4 or less, planning to do "commando touring", and will eat most meals in the parks, on-site is probably the way to go. If you want to relax, have more people, and want to save a few $$ by making a few simple meals--go off-site. Or do a split stay!