I stayed in Dorsoduro a few years ago and although the area was pretty quiet, I liked the fact that riding the vaporetto, we were only a few stops to San Marco. This time around we will be probably arriving by train and so would Santa Croce be a better location? Coming from Santa Croce, how long does that water bus take to get into Rialto and San Marco?

If we decide on Dorsoduro, are there water taxis outside the train terminal so that we don't have to take the water bus with our luggages? How long does that ride take from the train station?

From Santa Croce, a waterbus will take about 15 or twenty minutes to reach San Marco, depending on which stop you get the bus, and a few minutes to Rialto.
There is a water taxi stand on the Grand Canal at the station. It would be 15 minutes say to Dorsoduro, depending on where you are staying.

"would San Croce be a better location?
It depends on the exact locations in each. Some locations in Dosodoro are better - some locations in San Croce are better.

We just came back from Venice, stayed at Hotel Al Ponte Mocenigo in Santa Croce. I only have good things to say about the hotel. If you want to get to your hotel from the train station via vaporetto this hotel is very well situated. It is some 30 meters from the San Stae stop and you can reach the hotel without having to cross any bridges. It took us about 20 mins in vaporetto to get to San Marco.