Once you stay on site, I don't think you will like staying off site. I would stay at the Swan or renovated room at the Dolphin. They have an AP special, which is more money than off-site, but we stayed off-site 3 years ago at Christmas and we could not get into Magic Kingdom on two days because of the crowds and we spent so much time stuck in Orlando traffic, waiting in our car in the parking lot, riding the tram, etc.
You will not need to rent a car if you stay at Swan/Dolphin, and it is right next to Epcot, Boardwalk, MGM. You can walk to Epcot and Boardwalk and take a short boat ride to MGM, if you don't want to do a longer walk. The bus for MK/AK picks up at the Swan first on that route. Christmas is the busiest week of the year at WDW, so you will want to take advantage of Early Entry to the parks, which is only available to on-site guests.
If the $139/night is too much for your entire stay, you could stay at All Stars or off-site for the first and last night of your trip.
Here is the AP rate info:
"New Annual Pass holder's Rate
(Rate Code = AP)
For the remainder of 2003, the Walt Disney World Swan and Dolphin will be offering the following benefits to Annual Pass holders:
Special rates starting at $139.00 per night, available at BOTH the Walt Disney World Dolphin, as well as the Walt Disney World Swan.
One category complimentary upgrade on room (Purchase "Standard" rate, be upgraded to "Lake View", as an example)
Complimentary 4PM late check out at both properties.
* Based on rate schedule availability
Call 1-888-828-8850 for reservations
(Rate Code = AP)"