Heather,
I will tell you that you will be visiting at the busiest time of the year. Crowds will be at their very busiest during the week from Christmas to New Year. Don't let this turn you off. It is a wonderful time of the year to visit, and you can have a great time if you just plan well.
There are plenty of great places to stay, but with younger kids I would recommend to stay at a Disney resort to make your vacation easier with regards to transportation. Here is where I would stay, dependent on your budget;
- Value: Art of Animation
- Moderate: Port Orleans Riverside
- Deluxe: Grand Floridian
As for places to take them, the Magic Kingdom is going to be your most worthwhile place to go. It has more for them to do than any other park. If you have 5 full park days, I would plan at least three at the Magic Kingdom, and then two at other parks. Select those based on not just what they would want, but what you want to do to.
Write me back with more details on your traveling party, your interests, and I can refine both the resort and park plans!
Have a magical vacation!