Oh what a place! Very relaxing..... I lived in Cape Coral with my parents when I was in my final years of college - I was on the 7 year plan

I've been back to Sanibel several times since with my own family and we always enjoy it.
Couple of things to keep in mind....if you want to rent a house/condo from the locals, if you elect to use something like vrbo.com, they can only rent for, in most cases, a month at a time, which can get expensive. We typically use Resort Quest (resortquest.com) and they tend to be somewhat more flexible. There are several nice condos you can rent that have a short walk to the beach. I would recommend NOT staying in the area near to the lighthouse (nearer to San Carlos Bay) - the beach isn't nearly as nice, and it's kind of run down. Additionally, the Sanibel Harbour Resort and Spa is BEFORE the causeway, so if you want to get to the beach *on* the island, I would avoid staying there - you'd be crossing the causeway several times a day and driving to get to the beach. Last few times we stayed at Loggerhead Cay condos and had a pleasant experience.
As far as things to do, it's a very laid back scene, so if your family is into water parks, or adventure rides, and not spending the morning on the beach, swimming in the water, it might not be the best place to stay. Naples or Ft Myers Beach may be a better option. My family enjoys hanging out on the beach, having lunch there and then going out for a relaxing dinner or riding bikes around the area.
If you do go, be sure to find Bowman's Beach (on the way to Captiva) - it's a bit of a hike through a wooded area (with walk bridges) to get to the beach, but it's BEAUTIFUL - lots of shells to scoop up. There is also "Ding Darling" - the nature preserve and a lot of people bike through there as well.
Captiva is beautiful as well, albeit a little more expensive than Sanibel. South Seas Plantation has had an extensive remodel due to hurricane damage, and is lovely. A really cool restaurant on Captiva is the Bubble Room - lots of memorabilia, good food, fun atmosphere, but again, expensive!
There's also an outlet strip mall just before you get to the causeway if you're into shopping!
Good luck with your research!
Lynne