We went to the Edgewater earlier this spring and our 4 year old had a blast. The pool area is relatively small if you've ever been to an indoor waterpark in the WI Dells, but there is plenty of stuff to keep her occupied. There isn't really any space for just adults and you do have to watch out that you don't get beaned in the head in the basketball pool.
As far as other stuff to do in that area. We try to go at least one a year and enjoy driving up to Two Harbors to the lighthouse, Buddy's Rice (an old style mercantile/gift store) and Betty's Pies. Sometimes we also go up to Gooseberry Falls and Split Rock Light House. In Duluth, we spend quite a bit of time in Canal Park watching the gulls and the boats, visit the Maritime Museum, and eat at Grandmas. In downtown we like the Depot complex with the Train museum and Children's Museum. There is also the Great Lakes Aquarium and the Superior Zoo in the area.
Besides the Edgewater, we've stayed at the Holiday Inn downtown (ok), Comfort Suites in Canal Park (pricey but very nice), and Americinn in a nearby town (frigid cold pool). Have a fun trip!