You have clearly done a bit of homework. I hope that I can add something helpful.
We took our kids on the first trip when they were age 4 1/2, 3 and 9 months. I don't regret it a bit because everything was still real. Within a matter of months, my 4 1/2 year old daughter figured out that characters were just people in costumes. I am so glad we made the trip before she realized.
Some people say never take kids this young. I say it depends on how well your kids travel. Do they do well on planes and in hotels? Are they well behaved in restaurants? What happens if their sleeping schedule is thrown off? Do they handle change well? Those are better indicators than age.
If you have a relative you get along with well, invite them. Normally I can handle my kids alone no problem, but there were moments we really benefited from all 4 adults we had to help with the 3 little kids, fast pass finding, navigation, etc. My hubby and I were also free to go out at night when the kids went to bed.
We went the end of Jan/beginning of Feb and I would highly recommend that time frame. Disney is next to deserted. It was unusual to stand in line for anything. It is 60-70 degrees. I have been with college roommates in June and it is HOT and HUMID and we spent more time standing in line than anything else.
September is a great time if you are willing to take a little risk. Yes, it is hot and humid and hurricane season. But Disney almost never shuts down (maybe 1 day per decade) and it is the only chance at getting free Disney Dining package. It is also lowest attendance month of the year. The first week in December is nice - low crowds, weather in the 60's and the Christmas decorations are up. Just don't go when school is out.
I would recommend staying on site if you have no more than 2 children + baby. When you look at the cost of car rental and parking, it is cheaper to stay on site and take advantage of the free transportation.
I would HIGHLY recommend you take the kids for a nap after lunch every day. (That is hard to do off site.) They will be ready to go until the early evening. Otherwise they will get overtired and you're likely to have disaster.
Small World Vacations Travel Agency is great for getting you a good deal. We used Theresa Cory and she was on top of it always. Saved us an extra $300 + free park hopper & water park after I searched deals for 6 months.
www.allearsnet.com and www.mousesavers.com has great info.
We did the dining package and that was a good move. Again, if you walk in and pay you pay a fortune. The dining package cost our family as much as if we went to Denny's three times a day. You can split meals (as long as it is not an "all you can eat family style dining" restaurant.) We had plenty of food for all of us.
Because of the dining package, we did some character meals - WAY FUN! We had the best time at the Liberty Tree Tavern in Magic Kingdom. The rotating restaurant and the underwater restaurant and the princess character breakfast are the best in Epcot. We did Cinderella's castle (last meal before they doubled the prices / voucher points) and it was a bit of a disappointment. You could tell that Cinderella & Godmother were a bit burned out from all the brats they had to deal with. Hopefully they rotated their cast members and brought in new ones. We didn't do any other character stuff, the meals were plenty and saved time for other things.
As far as shows, parades and fireworks go, you can't go wrong. They are all really good. I would highly recommend Storytime with Belle. Hardly anyone knows or goes. It is surrounded by trees - quiet and secluded and a good break from the Disney chaos. Belle tells the Beauty and the Beast story and invites kids to come on stage, dress up and do the parts. It was wonderful! The only things I wouldn't recommend attending are Ariel's Grotto and Stitch's Great Escape - I'm not sure if they are even still there, but our only disappointments the whole week.
I wish we would have brought rain ponchos like everyone says to. We got caught in a bad pour. If you are trying to pinch pennies, go to the Disney Store, Target, Walmark or eBay and prepurchase souveniers to bring along. We had all sorts of Disney trinkets and new Disney PJs for our kids - paid a couple bucks on clearance and the kids were thrilled. We also brought our own glow sticks for the parades. I bought brand new autograph books on eBay for $5 including shipping - they are $16-20 at the park. We had matching Disney outfits for the kids everyday. It was fun, they were easier to keep track of, and we were able to overcome the temptation of buying $28 t-shirts for them in the park. They wore those outfits at home afterward until they literally fell apart.
www.cheapoair.com might get you the best airfare. We used AA.com because we had saved up point for two free tickets, then used their "travel deals alert" on the website to know when to purchase. www.farecast.com is a good predictor, too.
Use fast pass and baby swap. Fast pass is a ticket to come back and ride later without having to wait in line. You will see this for popular rides and busy days. Baby swap is for adults who have kids who can't ride. Adults take turns riding & watching kids, but you don't have to wait in line twice. If your children are skittish or easily scared, adhere to the warning labels on the rides. If it says it is a scary ride or show, you may want to think twice. Our kids were funny about that. They would get on any roller coaster they met the height requirement for and loved it, but the 3-D shows terrified them - even Flounder from Little Mermaid was terrifying in 3-D. Go figure.
My last bit of advice is to RELAX and ENJOY YOURSELF. If you are anything like me, there is a temptation to do it all, see it all and get your money's worth. That can ruin a Disney Vacation, especially with little kids. We did 4 days at the parks and got to see a lot, but not all of it. Just get in what you can.
If you have any other questions, feel free to email me.
Have fun,
S.
Sorry to be so long winded, but this may be helpful....
Disney charges through the nose for the first 3 days of tickets, after that, they are nearly free - $2 per person per day. It is to their advantage because after the third day statistically people start shopping and spending money and don't do as many attractions. Your airfare will be the same regardless, so you may just want to stay a week.
Also, children UNDER 3 are free, but if your daughter has had her third birthday, you will have to pay for her to get into the park.