We will be at DW for 10 nights and have added the dining plan on to our package as well. We will only be at the parks for 4 of those 10 days though. We are going to spend a few days shopping, going to Seaworld, Universal, etc. It is still a good plan for us because we will use CS credits for breakfast on those days we have something planned outside of DW and then at the end of the day, we will still use our TS credits at a DW restaurant.
I have a 2 1/2 year old DD and we also do not have to pay for her for the dining plan. At buffets you can get her her own little plate. What I normally did last year was put extra food on my plate for her and then just cut it up for her on her own plate.
At sit down meals, if you do order anything special for your child, you will have to pay for that yourself. If your child will be sharing your meal, just ask the server/waiter to bring you an extra plate etc. and it shouldn't be a problem.
Yes, if I were you, I would use the TS credits for any character meals that you want to go to. We will be using TS credits for Cinderella's Royal Table, Liberty Tree Tavern, and 1900 Park Fare.
Hope this helps.