We have always sailed in balcony cabins. Love, love them! Spend tons of time on the balcony and would not want to sail without one. However, we are a family of three and now that our son is in college it's often going to be just the two of us.
All that being said, I completely agree you did the right thing in switching to two rooms. As much as we love having a balcony, 5 people and one bathroom (even if it is split), would be a no go for me. Two rooms would be the way to go. Even with our small family we usually book 2 hotel rooms when we travel so that our son has his own and have done so for the last couple of years. The older they get, I definitely think they (and DH and I!!!) need their own space.
I also think as your children are still young, you aren't necessarily going to want to go to bed when they do. Having a separate room to relax in after they go to sleep would be wonderful. A lot of people use a balcony for that, I know, but I would imagine that it's kind of hard to get out there with the murphy bed down. Though I've never had to do that, so can't say for sure. (Admittedly I didn't read this whole thread, so someone with first hand knowledge may have already touched on that.)
At the end of the day, don't stress. You're going on a cruise!! Have fun and enjoy your two rooms! Thousands of people sail in inside cabins every week and they love it.