I believe there are two things you need to start with:
1. What is your overall budget?
2. Where do you want to stay?
All of the decisions you have to make right now flow from these two questions. I would also strongly recommend you invest a few $ in the Unofficial Guide, which can really help you out with both of these questions, particularly with helping you set up a realistic budget.
You'll get a lot of opinions here regarding question #2. A lot of people wouldn't stay anywhere other than on-site. For them, the trip would lose a lot of its magic otherwise. We have done it both ways and we personally didn't find the benefits associated with staying on-site worth the additional expense. We like to stay in a condo. with a full kitchen, and I would recommend that this is what you should be looking at for your group. We eat practically every breakfast in our room (which saves money at the margin and is a lot quicker) along with other meals, and there is lots of sleeping space. To give you a quick example on cost:
October 2003 - we stayed at the Sheraton Vistana Resort, which is very close to WDW (10-15 minutes from the time we left our room to the time we were parked at one of the 4 theme parks). We were in a 2BR, 2BA condo. for 7 nights and we rented this week from someone who owns a timeshare week there for $825.
May 2004 - we stayed at the BoardWalk Villas in a 2BR, 2BA condo. for 5 nights and we rented from someone who owns Disney Vacation Club "points". We did Sunday-Thursday nights because these require less points than Friday and Saturday. Although most people will tell you that you can rent points for $10 per point, we ended up paying a little more to stay at BWV because it is harder to get in to. All-in, we payed $1,625 for the 5 nights. Had we opted to stay 2 more nights, I believe it would have been at least $600 more.
Now, you can certainly stay on-site for less than this, but I'm trying to give you an "apples-to-apples" comparison of rooms. You could probably get everyone into a regular room at one of the value resorts and you'll probably end up paying less than we did at the Vistana. The argument here is that you're not in the room that often anyway. Again, this is a matter of personal taste, we are just more comfortable in a condo. with a kitchen.
Yes, there are some additional benefits associated with staying on-site - early entry, disney transportation, and other perks. You have to determine how valuable these things are to you. For us, it simply isn't worth 3X the room expense.
I love to think about stuff like this, so if you'd like to chat more, send me a message.