Hi Melissa!
With young children, I would recommend staying in a Magic Kingdom Monorail Resort if your budget allows. That's because with young children, I think you will be spending most of your time in the Magic Kingdom. The monorail resorts are:
- The Grand Floridian
- The Polynesian
- The Contemporary
Of those three, I would pick the Contemporary or the Polynesian. The Polynesian has a more romantic feel, but the Contemporary is within walking distance of the Magic Kingdom. If you would like a less expensive Disney Deluxe Resort, then I suggest looking at the Wilderness Lodge. It is close to the Magic Kingdom, but not on the monorail line; instead you take a boat from the Wilderness Lodge to the Magic Kingdom.
Less expensive recommendations are Port Orleans Riverside for a Disney Moderate Resort and Pop Century for a Disney Value Resort. I think your children will enjoy whatever resort you end up staying at.
With regard to the Disney Dining Plan, I can't tell you which to get. It really depends on how you like to dine. Some families enjoy eating at one or two Table Service (full service) restaurants every day, while others only want to do Quick Service (think fast food) locations. To help you decide what makes sense for you, I recommend visiting the independent website AllEars.Net. At All Ears, you can see the menu, including prices, for every Table Service and Quick Service restaurant at Walt Disney World. Armed with that information, you should be able to make a better decision with regards to a Disney Dining Plan.
I hope this helps in your planning! Write back with more questions!