My wife and I already had passports from our travels both personal and for work before we had kids.
I plan to make a number of trips with the kids over the coming years now that they are getting old enough for it to be worth while. So, for me, getting them passports that I'll be using with them for the next five years was an easy call.
Also, passports for minors aren't as expensive as adult ones.
Now, if this is your first ever cruise and you're not sure it is something you will want to do again, then it could make more sense to just use birth certificates this time.
Still, I have to echo jrabbit - now that we have them, even when we fly domestically, I bring them with us as our photo ID. At least in my experience, there's less hassle and questions from TSA when everyone has a passport to go with their boarding pass.