You would have to do the math to decide which was the better discount for your family.
Free dining is like any other discount in that it may or may not be available at every resort and/or every room type. Some say free dining is best at the values and mods and isn't a good deal when staying at a deluxe resort since you have to pay rack rate, but it is not that cut and dry. Whether or not free dining is the better deal depends on several factors, such as the number of people in the room, their ages, the time of year, and the resort/room type. We are a family of 4 (all Disney adults) and there have been times we have saved more at a deluxe with free dining than we would have with a % off the room. Just because the room rates are higher at a deluxe doesn't necessarily mean free dining isn't a good deal. We always stay deluxe and have done free dining as well as a room discount, depending on which saved us the most money.