Lots of good advice here. Another suggestion is the pick up the Unofficial Guide to Disneyworld (or something like that)
I highly recommend this book. It has different plans for doing Disney with kids and without. It lists which times which parks are the most crowded, and also which times at the park which rides are the most crowded, and actually provides plans of the order to do each ride in order to avoid the crowds.
It talks about all of the Disney resorts and restaurants as well. I've stayed at both Disney resorts and non-Disney resorts there.
I've only stayed at the moderate resorts that are Disney owned. However, the rooms were clean, and we weren't in the rooms that much because we were at the parks most of the time.
The positives for staying at a Disney resort:
1. Transportation to and from the airport, and they take care of your baggage as well. That was a huge plus.
2. Meal plans can be a good value, and many of the meals can be had at your hotel.
3. Transportation to and from all of the parks.
You don't have to worry about driving, parking, and only minimal concern over meals. One suggestion I would make is Ohana at the Polynesian resort. The entertainment is great for kids, and the food was awesome and unlimited as well.
The positives for staying off site at Disney
1. The rooms may be cheaper.
2. You will most likely have a car and aren't limited to just Disney World while in Orlando. You can go other restaurants, malls, Universal, take a drive to the beach, or whatever else you'd like to do.
Of course the negatives are parking at Disney World, finding your way around while driving, paying for the parking at Disney World etc.
Anyway the Unofficial Guide to Walt Disney World is worth it's weight in gold. Get it ahead of time to help you plan the trip details, and bring it with you for advice. I can't tell you how much time it saved avoiding crowds, seeing the shows we wanted to see, and all of that kind of stuff.
They have all sorts of plans for going with kids, without kids, 1 day at the park, more than 1 day at the park, what order to see the different parks in so that kids enjoy it all, and don't find Epcot to be anti-climatic after having been at Magic Kingdom, etc. There is so much in there that can help you make the most out of your trip.