Which characters do your kids like best? Pooh and friends? Mickey and friends? "Face" characters like Cinderella?
One of our favorites is Chef Mickey's in the Contemporary Hotel. It's a great place to go the night you arrive if you don't want to use a park pass day the first day. It's a buffet with great food (including peel-and-eat shrimp) and an incredible dessert section. When we were there Mickey, Minnie, Goofy, Pluto, Chip and Dale would come around to every table and spend plenty of time taking pictures, signing autographs, and goofing around with the kids. Every once in a while they'd have a "celebration" with music and the characters dancing around the room and everyone twirling their napkins. Very festive! Goofy had his own table where he would custom decorate huge cupcakes for the kids (throwing the cupcake onto plates of soft icing, sprinkles, etc.)
Dinner is not that much more expensive than breakfast, and the food is much more diverse and plentiful.
If your kids like Pooh, they'll love the Crystal Palace in the Magic Kingdom. It's a buffet, too. They have breakfast, lunch and dinner there. We had lunch there last trip, and we're going again this time.
There are lots more choices, and I'm sure others will be along to give suggestions!
For your gang, I probably wouldn't attempt the castle with the princesses. If your 4yo was a girl I'd go for it, but not so much for a boy.