H.T.
I agree that obediance classes may help. I am a dog lover myself and would also recommend surrendering him to the Humane Society versus putting him down, or try to find another home for him.
However, it sounds like your dog is great with your kids and isn't around strangers much. If it were me, I would let it be and get him in some classes. He is just very protective, which is normal. My dog has to be muzzeled at the vet as well, but she is a great loving family dog. Good Luck, and if it doesn't work out...I know of may great dog "foster" homes!
H.