We went to TL on our trip last year. We had stopped by WL just to explore because my mom and uncle had never been there before and I think its just beautiful. Well, while we were there a "monsoon" hit! Torrential rain, thunder, lightning. So what to do? We headed into the Territory Lounge! It was great! We didn't eat but the appetizers sounded good. We stayed for a couple of hours riding out the monsoon and caught a football game on their big screen.
The staff were great and showed much interest in whether we had everything we needed, etc. I wouldn't think there would be any problems with small children in there either. Its not like a neighborhood bar. If you are staying at WL, check it out and see if you think you would feel uncomfortable taking your kids with you. I doubt it. I'm pretty sure its no smoking-- doesn't Florida have a smoking ban statewide in public places?
We pretty much had the place to ourselves the whole time we were there. And, no, you don't have to dress up at all. We would definitely go back again.
Don't know if this helps or not. Have a great trip.
loveswdw