I've done both. And, you're right: Disney charges a lot of money if you just compare room-to-room vs. offsite hotels. You aren't just paying for the room, though. You are paying for an immersive experience. Some people place a very high value on that experience, and others don't care so much.
You won't know which way you fall until you try it. We're in the "don't care so much" camp. We also don't consider hotel rooms a vacation---I want at least separate sleeping spaces for the adults and the kids, and we find having a washer/dryer, kitchen, etc. a real convenience on vacation. I don't "cook", but it's nice to be able to have breakfast in the unit, with real dishes, without having to get out of our pajamas and go to some food court somewhere.
Comparing a 2BR condo at Old Key West to one of the nicer, well-located offsite resorts, we find the onsite experience a little bit nicer, but not so much nicer that (a) we'd stay in a mere hotel room for the four of us just for "the magic", or (b) spend thousands of dollars more to stay onsite. When we can get a timeshare exchange into DVC, we will take it. Otherwise, we're just as happy to stay in one of the many wonderful resorts just outside the gates (and, in one case, within them.)
I don't sign up for the dining plan, ever. We always spend less just eating where, when, and what we want than the appropriate dining plan would cost.. We tend not to quite get one TS meal per day, and the more we eat, the more likely some of them are less expensive. Some people like the pre-paid aspect of the dining plan, but to me that just doesn't matter.
My observation so far is that people who have tried both an onsite hotel room and an offsite condo, townhome, or pool home, generally find the extra space and amenities of the offsite locations a true value for the price compared to what they are getting in Disney's resorts. Not everyone, true. But, I know a *lot* of die-hard onsite fans who tried the condo thing and really really liked it, and only a few people who found it not to their liking. When comparing apples to apples (hotel room onsite vs. hotel room off; condo onsite vs. condo off) the verdict is a little more mixed, and it usually comes down to how painful the hotel bill is for your personal circumstances.
In the end, it's hard to go wrong either way.
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