At one point I would have told you that onsite was the only way to go. DH and I have both been to Disney many times. Our first trip together was our honeymoon in 1999. We stayed at the CBR with no rental car. Even though we loved it, no car was a definite hardship for us (OK, it was mainly due to the fact that Disney has only Coke products, and I don't do well without my Mountain Dew).
Anyway, when DS was 11 months old in December 2004 we stayed at the WL. It was great, but challenging to keep him in a small hotel room. When we went last year in December, we decided (with much research and quite a bit of trepidation on my part) to split the trip. We stayed offsite for 4 nights at the Sheraton Vistana and onsite for 4 nights at the Poly. After that I am not sure I can justify staying onsite again even though the Poly was awesome.
Yes, it is nice to leave the car behind and use Disney transportation, but we found that it was actually easier and quicker to take our own car than to rely on the buses and/or monorails, etc. For the cost of accomodations, I found even with just one child (who was almost 3 at the time) that it was sooooo much easier to have the extra room to run around. In February 2003 we stayed at the BWV in a 2 bedroom with the in-laws and still found it somewhat cramped compared to the Vistana, but that was when we were still young, partying and needing our freedom so that may be a skewed view.
This year we are staying in Windsor Hills which is very close to Disney property. We are staying at a condo that is "Mickey themed" to help keep the feel of Disney with us even though we are offsite. I even convinced all of the in-laws to stay offsite for the first time and they are skeptical but optimistic. I think there are many places like that where you can feel a part of the magic even if you are not onsite if that is your main concern.
I think there are pro's and con's both ways. As previous posters have said, you won't know until you try. Regardless, you will be near Disney, so how bad could it really be, right? And even if you super hate it, you will be able to say, "well, at least we didn't pay Disney prices to stay here". You've stayed in condos before so you know the benefits in that respect. Those are my long-winded thoughts for the evening! Good luck with your decision!