After many, many visits I would have agreed with you about the food until our visit last year. Olives on Clifton Hill was pretty good. The Four Brothers up in an area of town we never visit was fabulous Italian -- think old school w/ lots of dark wood & red leather. If you're heading toward Niagara on the Lake, which I agree is wonderful, the Pie Plate in Virgil (5 min from NOTL) is the kind of place that can make your mouth water just thinking about it.
Dining has always been a downside to Niagara visits, but when we go back these three are at the top of our list.
Definitely stay on Canadian side, but do make sure to visit the NY State Park & take advantage of the viewing there. It is lovely & much, much better than I ever would have dreamed. You can even walk across the bridge & catch the park shuttle right in the parking lot. Very fun, very well worth it.