As others have said, be accommodating to your childrens' schedules. If your 1YO is used to napping from 12 noon to 3pm, you'll have a MUCH more enjoyable trip if you plan to be in that hotel room daily from 12-3. Likewise, don't expect the kids to necessarily cooperate if you want to push them out the door for Early Entry if they are typically late-risers.
Remember, your kids' biological clocks don't know (or care) that you're on vacation.
If you want to help introduce your children to the characters, look for some of the Disney Sing-Along-Songs videos that feature the live WDW characters. The best is called
Disneyland Fun. It's definitely showing its age (had to have been filmed in the mid-80s), but you'll see Mickey, Minnie, Pooh, et al. singing and dancing down Main Street. We got that tape for our 18mo son about 3-4 months prior to our trip last fall, and he had no problems interacting with the characters.
They also have videos with beach and campground themes that were filmed at Disney World.
When you arrive, make time for the characters. IMO, the indoor greeting areas are the best format for visiting with them. You don't have to stand in the hot sun, and you're basically guaranteed of getting to see the characters before you leave the building. If you line-up to meet a character outdoors, there's always a chance he/she will have to leave before you get to the front of the line.
Your 3yo daughter would probably love one of the princess Character Meals.
Try to plan a meal at Cindarella's Royal Table. Kinda neat to tell people you ate in the castle. The servers are a hoot. Often times you'll be treated to Captain Hook chasing Peter Pan around the upper-floor balconies of the castle.
Below is a great list of "Overlooked Attractions" if you want to try and do something that's off the beaten path:
http://www.wdwig.com/ola.htm
Most of all, remember you're on vacation. Take time to enjoy it as such. So-called "commando" touring is not meant for those with small children.
Even with a week at WDW there is absolutely NO WAY that you will be able to do everything!!! Remember that. Repeat it to yourselves often.