Oh My Gosh! That is overly harsh. I admit that if you DRIVE into the city of Niagara Falls at night, it can be a little dicey, but it isn't ghetto. Sure there are poor areas, but those are neighborhoods that most tourists need not venture into.
If you stay within walking distance of the falls, you will be perfectly fine. If you want to drive around Niagara Falls (the city) just do it during daylight, and stay on the main drags.
There is an outlet mall not too far away that is great.
Stuff for a 2 year old? Maid of the mist, aquarium (cheap & small), just walking around chasing the birds and ducks, trolley ride, ferris wheel on Canadian side, pool at the hotel, vending machine at the hotel
The cave of the winds might be too slippery for her. The iMax movies might be too loud and overwhelming. But you know your child best.
The weather is going to be amazing. Just come people watch, and check out what mother nature has designed.
One of the great things about niagara falls, you don't have to get up early for the rope drop. Sleep in, enjoy a leisurely breakfast, then head out for a relaxing day. No need to rush to get a FP!