tybella - We stayed at the Palace last April. Was there for a conference so the 3 kids were at home (and unimpressed their parents went to Disney w/out them). We had a tower room on the 23rd floor with great view of DD (Downtown Disney). With your family you would need a larger room, likely in the 'Island' section.
The proximity to DD was a bonus (across the street), but the non-Disney hotels on Disney property have their own free shuttle. While not as frequent as the Disney Buses they have routes direct to the parks.
There were many families staying at the hotel - there are two pools, one with a decent sized shallow end and a perfect, partially enclosed hot tub - where our large group ended every night...
Since this is a property on Disney property the onsite restaurant prices are high and the 'market' where you can buy snacks, baked goods, etc is more affordable but still quite pricey.
We are taking the entire brood in Nov. and considered staying here but had a better deal elsewhere that we could not pass up.
Enjoy your trip!