Katie:
You are so smart to take advantage of the 3 free nights for your family! And your children will bring back so many memories with their grandmother! We've taken grandparents three times over the years and are looking forward to another trip with them this year!
For your family, I'd recommend the cabins at
Fort Wilderness, for several reasons. Obviously, you've got six in your traveling party, including three adults, so it's an economical option vs. getting two separate rooms or a 2-bedroom villa. The cabins are spacious enough to allow your husband the "space" you
mentioned because they have a separate bedroom from the common
kitchen/dining/living space and a balcony/patio area.
But the #1 reason I'd suggest the cabins over the jazz suites that sleep six at All-Star Music or a villa is because you have a smoker in the family. Be aware that Disney World went
smoke-free in their resorts in 2007, except for designated smoking areas. In addition, most Disney resorts also forbid smoking on balconies. However, at Fort Wilderness smoking is permitted on the patios. So I think the cabins would give both your husband and mother the space they need.
Enjoy your time together.