Take a look -
http://www.staytimessquare.com/
Full kitchen. Nice hotel. Great with kids.

I think somewhere not too far from your friends for Sat. night and Sunday morning would be best. I looked at Hotels.com for your dates everywhere south of Penn Station and found JUST THREE with rooms available for your dates that will fit the 4 of you. they all have ratings of 4.1 or higher (out of possible 5.0). They are:

The Marcel at Gramercy
3.5 stars
4.1 / 5 from 398 guest ratings
Chelsea - East and West Villages
866-573-4235
$279 average nightly rate for your dates

Holiday Inn New York City - Wall Street
3.5 stars
4.5 / 5 from 258 guest ratings
Wall Street - Financial District
866-678-6350
$288 average nightly rate for your dates

Cosmopolitan Hotel
(1 room left)
2.5 stars
4.2 / 5 from 39 guest ratings
SoHo - Tribeca - Lower East Side
866-767-0278
$288 average nightly rate

I would call all three ASAP.

http://www.staytimessquare.com/ looks like a great option if $100 per night over budget (for their nights) is not an issue.

$42 over their budget, but that includes free breakfast, wifi, etc. With full kitchen and traveling with a family, $42 can be recouped quickly vs staying at a hottel that does not offer similar amenities -

"...offers a complimentary hot/cold breakfast buffet every morning featuring; fresh fruit, yogurt, eggs, bacon or ham, oatmeal, bagels, sweet breads, coffee,juice.. Also our Sundowner Evening Receptions are offered complimentary every Tuesday, Wednesday and Thursday featuring a selection of hot and cold appetizers along with beer, wine and soft drinks. Or if you prefer, all studios have a full kitchen to prepare your own meals exactly as you like them!"

Do the friends have kids too? Will they be willing to travel uptown if necessary? I think given the short notice for booking, being a family of 4 and your budget, you don't have a lot of options, but frankly I'm surprised at how good the options are!

Directly across from Penn station is the Affinia Manhattan, a suite hotel. The location isn't very attractive but it's sure convenient for a short trip of coming and going from Penn station and near lots of subway connections. It's on oyster.com for $296/night plus tax for a studio suite which will have a fridge and more (microwave etc.) with 2 queen beds. This is probably the most space and the biggest beds.

If you'd rather be near the friends, the Marriott Downtown is $267/night plus tax for 2 double beds on oyster (although you might find it cheaper elsewhere). Even snazzier, Hotwire has a 4.5* hotel in the Soho/Finacial dstrict area (for a family of 4) that's $300/night plus tax. According to the Hotwire list on betterbidding.com it's the new W Downtown! Tempting but no fridge and I don't think the bathrooms have tubs, just showers. The Marriott downtown does have tub/shower and a minibar fridge (which they would probably empty on request).

On the Ave has a room with 2 doubles that's just over $300/night plus tax on both booking.com and oyster.com

I don't think Otto is really appropriate on a Sat. night with kids that young unless you're thinking of eating quite early (like 5 or 6) and it's not really that near Battery Park anyway. If you're going to eat downtown either near your friends or if you stay down there, I'd pick something in the financial district or Tribeca. Gigino's in Wagner Park is an Italian near Battery Park and has views of the Statue of Liberty. http://www.menupages.com/restaurants/gigino-wagner-park/
(If you stay downtown, it makes sense to take a ferry ride to see the Statue and perhaps go see the ships at the South Street Seaport.) While I don't know it, the Bailey Pub looks like another good option downtown for dinner (or breakfast). http://www.menupages.com/restaurants/the-bailey-pub-brasserie/

The Holiday Inn Wall St. is cheaper on oyster.com ($262 plus tax) but not sure about fees.

Distrikt Hotel. Hands down. Best property and on the corner from A/C/E/N/R/1/2/3 taking you everywhere you need to go. 15min up to Natural History Museum, 10min down to Battery Park.

and $400/night for a room to sleep 4 people.

Wow. I am so impressed by all of the responses I've gotten so quickly . Looks like I have my work cut out for me. I will respond back with an update. Thank you all so much for taking the time to help me! Yes, my friend have kids, too. Ages 4 and 6. We had read Otto was good for kids, but maybe not.. Good thing there is no shortage of options for places to eat in NYC!

And by the way, we did the staten island ferry to see the SoL last time ( last summer ) and it was kind of a nightmare. Hot + sticky + a million tourists + us with two young children and hardly a place for strollers. I'd say it would be cool if your kids were 8 years+!
The stay at times square looks gorgeous.

There's an Embassy Suites downtown. It's a bit off the beaten path, but it is near lots of outdoor play area for young kids (Hudson River Park), and includes buffet breakfast and I believe has small fridge in room.

I agree that Otto during prime time is not a good idea. Very crowded. I also agree the the Affinia hotels are a good option as well. Many are suites and have small kitchens.

The Embassy Suites is CLOSED and being renovated to be another non suite hotel. I don't think you can compare last summer with late May in terms of weather or crowds but if you've already done the ferry, you don't need to do it again.

Otto is ok for kids during the day but I'm saying on a Sat. night at prime time you will not be appreciated with kids.

The Staybridge suites may look gorgeous online but it's not really a convenient location for anything you plan to do and is more money than you need to pay. I honestly think you either stay downtown near your friends or stay up on the upper west side near the museum where it's so kid friendly. There's also the Children's Museum near the Mus. of Natural History which is particularly good for small kids. http://www.cmom.org/

Thanks for the response about The Staybridge mclaurie.
I think I'm leaning toward the UWS. We can meet our friends somewhere in the middle for dinner. Then they can come to us for Sunday morning museum activity.

"but it's not really a convenient location for anything you plan to do"

Well mclaurie, I must have misunderstood the OP. I read that she wanted something between the Museum of Natural History and Battery Park with a fridge and they are arriving via Penn Station.

"With such a short amt of time I hate to be spend too much time traveling back and forth on the subway although we really like the upper west side"

If I were looking for something in between and wanted a fridge for kids, the Staybridge Suites would be a perfect solution. In any case, it's one suggestion.

bwino spent a month there and loved it. Her trip report can be found via a search if anyone wants more info on the hotel.

If the OP likes the UWS and wants to have her friends come up the island to see her, that's a great solution. I know how long it takes to travel from the UWS down that far and it wouldn't be my favorite way to go back and forth that far with two kids - but maybe that's just me. A hotel midway would work for me.

I booked Wyndham Garden Times Square South on West 36th Street as a Secret Sale room on quikbook.com for a 2 dbl. bedded room for $149.00 a night (before taxes and fees, of course). This was for 2 people but check the fine print before you book this non-cancellable room to see if you can have just 2 adults or just 2 people. You might also call the hotel directly and ask them if they have a similar sale going. The room was fantastic and it was close to MSG (really down the block) and subway stations. Tick Tock diner is around the corner for a convenient breakfast, but the hotel offers breakfast in their lobby. Not free, $17.00 pp.

It was the secret sale hotel listed as Superior, near MSG and 8th Avenue. It's often discounted and I hope it's always described this way! Just make sure you can include your 2 little ones in the room.

We looked at all the options last nite and in the end decided to go with the Empire Hotel on 63th. The main reason is because I could pay the entire stay ( tax included) using points with my Chase card. I am going to call and see if I can get a fridge in the room or if there is a minibar if I can get it emptied. I really was enticed by the idea of having a kitchen, but I can't beat a FREE stay. I hope the Empire is OK. I have read mixed reviews on trip advisor. It's a little closer to the UWS, which we like.
thanks very much to everyone for your help!

cara

'Free' beats 'discount' every time! Have a great visit.

My friends had a family event in Manhattan recently. The adults stayed at the family's apartment, but the kids (late teens to late 20s) stayed at the Empire and they (and their parents) thought it was terrific. I can find out more about it tonight.

I stayed at the Staybridge, and it's about a 10 minute walk from Times Square, across the street from the back of the Port Authority Building. It does have a full kitchen, but that takes a lot of the space. The room I stayed in would be extremely tight for more than two people. It's clean but pretty basic, certainly nothing special.