DD was 11 months when we first took her to Disney. It was a great time... she wasn't cranky about riding in a stroller, we could hang out in the baby station without a problem, she was bottle fed so no problem there, and she never complained!
Next trip she was 3 yo, and again had a great time, but this time she was afraid of characters and the dark rides. She had a REAL problem with Goofy, but other she just shied away from instead of crying.
Next trip was for her 5th birthday! Still not interested in dark rides, but got over the issues with the characters that we went to see. The next trip was only a couple months later and we discovered that she wasn't completely over her character fear - especially when it came to meeting Mike and Sully. Other tall characters she was fine (Buzz, and Jake from the neverland pirates) but she wanted NOTHING to do with Sully.
Last trip was a couple weeks ago (still 5 years old)... no problems with characters (didn't see Sully or Beast, so don't know that anything has really changed on that front). And is now willing to go on some of the dark rides, as long as we let her cover her eyes when she's scared.
Oh, and one thing we did get for her during the 3 year old trip was a pin on Mickey light. She uses that on the dark rides to give her a bit more confidence.
As far as the hotel... we are HUGE fans of staying at the DoubleTree in DTD. The suite gives plenty of space, and she can be sleeping in the other room while we are up in the bedroom reading or watching tv.