Wow there is a lot to this question

IMHO the most popular towns are Sister Bay, Egg Harbor and Fish Creek. All are on the bay side which is busier, more active, more "stuff." You will be able to find craft fairs, cutesy shops, perhhaps parades, festivals, etc. during the summer. This is tourist central at this time of year, prepare for traffic.

For family fun I recommend Penninsula state park. They have a very nice golf course (make reservations). The thing to do though is to rent bikes and do the trails throughout the park. Great bike trails. You can rent bikes in Fish Creek right outside the parks trail entrance. Swimming in the bay is possible but unlikely unless you are there in the hottest parts of summer. There are limited sand beaches, mostly rock shoreline.

There are some neat lighthouses on the lake side. Make sure and do a fish boil for dinner, they are all over the county.

I'm afraid you will have to do some research on lodging and eating, there are just too many choices, price ranges, etc.

Take a look at Homestead Suites. It has a terrific location (at the south entrance to Peninsula State Park and walking distance from Fish Creek.) It also has an indoor pool (great for rainy days)with breakfast included, although it's kind of basic. The restaurant next door, Julie's, is good; there are a number of other restaurant within a 3/4 mile walk.
www.homesteadsuites.com

Things to do: rent bikes for a trip through Peninsula Park, stopping at the beach to rent kayaks or whatever, visit the Red Putter for old-fashioned mini-golf, go to Wilson's for burgers and ice cream, see a concert, Peninsula Players performance or a real drive-in movie, visit Whitefish Dunes State Park (on the other side of the peninsula).

Check out the pricing of rooms at any hotel - rates start to pop around mid-summer, and from the third week of July to the middle of August things do get expensive and crowded.

If you go to the tip of the Peninsula you can take a ferry over to an Island. Forgot the name, Washington maybe?

Washington Island indeed! It's a good day trip. If your kids like biking it would be a great day.

You may want to take some good shoes and swim suits and take the "Karfi" from Washington Island to Rock Island, a State park that covers an entire island. Nice beach, good hiking.

The posts of Pennisula State Park are right on the mark. If you are interested in something more remote, go up to Newport State Park, bigger but a fraction of the people.

If you go to Peninsula State Park, you have to go hiking on the trails and climb the tower. You can see so much from up there. It might be fun to go swimming there as well or rent bikes.

A nice place to watch the sunset and get some ice cream is in Ephraim and get a cone at Wilson's. Second Story restaurant is pretty good. You can overlook the bay.

My family always enjoys going to the drive in near Fish Creek. They have a double feature! We pop popcorn and get sodas before we go to save some $$.

Another nice place to visit is Fish Creek. They have some neat shops (a confectionary!) the kids will like. There is also a good fish boil there. Very dramatic! A must for delicious frozen custard and burgers is Not Licked Yet. It is close to one entrance for Peninsula.

Sister Bay also has nice shops. You have to see the goats on the roof at Al Johnson's. We ate at a good Italian Place there for Pizza, but I can't remember the name. I think it was D'Amico's.

Have a great time!

Took two trips to the Door in 2003. I also recommend Penninsual State park for biking, lighthouse and hiking. Don't miss the goats that live on the roof of the Swedish restaurant in Sister Bay. Also famous sunsets at Sunset Park in Fish Creek. But most of all don't miss The Red Putter for a game of nostalgic mini golf. Bring your camera. I would get a cottage if that would do for your family. Bring bikes it's easier to get around to places close by. I wouldn't waste my money again on Washington Island, there just isn't enough there to make it worth it.
A charter fishing/boat trip is also fun. If you've never been to the east coast Door County has the same feeling without going so far. There are also some things to do in Sturgeon Bay like a train museum and Lake/Boat museum. Enjoy! It's a beautiful, if crowded, place!