Arriving by plane or train? The downtown hotels are rather expensive IMO. http://trip.amtrak.com/hotels/availability?For=TrainStation,PHL&DateRange=2012-07-10,2012-07-17
You could commute into the city on the train to save some money.

Arriving by plane.

The public transit system in Philly is excellent, so just pick any place within a block or two of the Market Frankford Line (aka the Blue Line). This means pretty much anywhere along Market Street.

I chose a weekend in July, searched for two rooms and four guests, and had little trouble finding downtown sites with rooms for less than $150 a night.

> want to be close to attractions that would entertain our kids

Philly has SOME kid-friendly attractions, but is, like all large cities, designed for its adult residents. What exactly are you hoping to be close to? And how do you define "close?"

Bizarre as it may sound, one of the best place to take kids is the Camdem waterfront, with its aquarium, kids garden, and battleship New Jersey.

Still check the Westin on the Amtrak list.

If you're looking specifically for hotels under the Starwood banner:

http://cities.starwoodhotels.com/Philadelphia-Hotels

Any of the downtown locations would be fine. Just don't stay at the airport -- paying for four people to commute, back and forth, EACH DAY, would be an incredible waste of time, effort, and money. If you're paying for your lodging with Starwood points, the above Center City places will be the best choice for four people.

Is it better to be in downtown or historic?

> Is it better to be in downtown or historic?

Not sure EXACTLY where you draw the line between the two, but I'll say it again: if you simply stay anywhere within a block or two of Market Street, you'll be fine. That means anywhere between 2nd Street and 40th Street. Even if you stay in the University City Area, you'll just ride the Blue Line down to Fifth Street and Independence Hall.