Hi Diane,
You most definitely do not have to make a reservation for the Fantasmic Dining Package in order to enjoy the magnificent fireworks and water show
Fantasmic at Disney's Hollywood Studios.
I honestly do not think that there is a bad seat to be had in the theater. Seating begins 90 minutes prior to each show and I would suggest aim to be lining up by no later than this point.
The advantage of the Fantasmic Dining Package is that you are guaranteed a seat for the show and only need to arrive 30-45 minutes prior to showtime.
If you are planning on having lunch or dinner at a table-service restaurant during the day anyway, I would without a doubt advise you to make an advanced dining reservation for the Fantasmic Dining Package. If not, I would still give it some serious consideration as waiting around for 90 minutes plus with three small children is not going to be easy. My family tried the dining package for the first time during our last trip to Walt Disney World and thought that it was definitely worthwhile.
If you do decide to opt for the dining package, with children of your ages, I think that Mama Melrose's Ristorante Italiano would be my first choice of restaurant followed by Hollywood & Vine.
Reservations can be made up to 180 days in advance online
HERE or by calling (407) WDW-DINE.
I hope that you enjoy the show and have a magical trip!