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Hello,Welcome and thanks for your question. What kinds of interests do the members of the family have? Are you interested in a beach, or is a pool sufficient? Do you require a house/apartment or place with cooking facilites or just a hotel room? Or perhaps your family would be interested in a camping experience? Is cost a concern? What is the budget? Those kinds of things would dictate the "best" place. There is no one answer. What is best for one family wouldn't even be on another family's list of possibilities.
Let me know what type of vacation you are looking for.
All the best,
Yes, Cape May would be my #1 pick for a family with small children. It's quieter and beautiful. Here is a site that has some larger house rentals: http://www.capemayrentals.com/large-house-rentals.html
We have stayed at "Frog Hollow" which is decorated inside like the quintessential Victorian and also at the "Mary Knerr House". The latter has a fenced-in yard which might be nice for the smaller children. I can heartily recommend either of them.
My concern is that it is late in the season to be making a reservation for this summer. Many houses are rented a year in advance. Still, it is well worth trying if your vacation is in summer 2012 rather than 2013. If you don't find something right away, try putting your name on a waiting list since occasionally there are cancellations, even in the most-desired properties. Of course if your vacation isn't until mid-September or later this probably wouldn't be a problem.
Have a wonderful vacation!