The La Luna Inn in the Marina District is a great place for families and a good deal. It's retro and kid-friendly. Here's a good article with suggestions for kids in San Francisco, too:
http://www.crshotels.com/view_article.asp?ArticleId=77

Stayed at the Sir Frances Drake hotel a few weeks ago for 4 days, it was great. Free wi-fi (although a little slow/spotty), clean nice room and a great view (ask for a room on the Union Square Side above floor 10). Would definitely stay again.

I personally prefer staying in the Union Square area, although I don't have small children. I see easyt's points about Fisherman's Wharf for young kids. The main tacky area is a 2 block stretch of t-shirt and tacky gift shops. The rest of the FW area is very enjoyable.

At the time of year that you are going, Union Square would be great for the kids. There are lots of holiday events and decorations. I'd book soon though as a lot of people stay in that area over the holiday season.

margy

ddpatrick7 has 2 small children ages 4 & 7. A "30 minute walk at a steady pace" is going to tire the kids out before they get to the fun. The fun stuff for kids in SF is in the Fisherman's Wharf area:
Pier 39
Ripley's Believe it or not (silly but fun)
Ghiradelli Sq (chocolate & ice cream)
Harbor Cruises nearby.
A nearby trolley stop

And so on. If the trip is meant for the kids to have fun, then staying close to the fun should be a consideration. Nobody wants to drive in SF, so they would need to take a cab to the fun activities if they are staying far away. Lines for a trolley can be long (30-45 minutes at peak times). Standing in line is no fun for small children.

Here is something I wrote & posted 3 years ago about the Wharf.

I visited the Wharf recently for a survey. It's worse than I remember from my last visit (I’m a SF native, and have lived in SF or very close by, for 31 of my 57 years). The storefronts were loaded with bracelets, hair bands, key chains, placards, etc with people’s first names on them. I don’t think I’m exaggerating when I claim that more than 50% of the shops are T-shirt stores. On the main “Boardwalk” (on Jefferson between Leavenworth & Taylor) there are the trinket shops, the T-shirt stores, a McDonalds, In-N-Out Burger, Hooters, Wax Museum (featuring a wax statue of Brittany Spears out front), a Ripley’s believe-it-or-not , a place called “Rainforest Café” that looks like a theme restaurant but when I looked in all I could see was t-shirts. I’m not just “cherry picking” the most “gawd-awful” places and describing them – what I just mentioned accounts for probably 85% of the stores along the Wharf Boardwalk. I did not make it over to the Ghirardelli Sq – I hopped on a cable car & got away from the Wharf as fast as possible. Also, there seems to be a lot more parking lots right in the middle of the Wharf than I remember – not very scenic at all.

OK - this is 7/12/07 now. Earlier this year I read a story in the SF Chronicle that Ghiradelli Sq is undergoing a complete renovation. Last time I was there, almost all the shops in the Square were vacent, except the ice cream place. The Chronicle said that the place will be converted into luxury timeshares. Most locals don't go to the Wharf, Pier 39, or the Cannery. I guess the tourist trade wasn't enough to keep many if the interesting/unique shops in business. I'll drive past Ghiradelli this weekend & see how things are progressing.

Stu Dudley

We stayed at the Argonaut last year with our kids (7 and 10). They loved it. The hotel is nice (queen beds rather than doubles), funky decor, and we heard no noise from outside. The kids get to pick a toy from a pirate's treasure chest when you check in. We chose Fisherman's Wharf because of the "kid-friendliness". Our kids don't care much for shopping or dining, but they loved the outdoor stuff, cable cars, sea lions, parks to run in, boats to crawl around in, etc.
We live outside of Boston and the kids could care less about Newbury St. and Back Bay (a favorite area for me), but love the Faneuil Hall/New England Aquarium area, so it really depends on what kind of vacation you want to have.

indietraveler2 is here marketing his/her website.

Hey indie, PAY for your ads you bum!

Personally I did not like staying in the Fisherman's Wharf area. Since I last visited 20 years ago the area has gone from fun to trashy. I was very disappointed.

I live in SF burbs and work in the city (right next door to the Hyatt Regency Embarcadero). I personally would prefer to stay in the Union Square area, but think the Fisherman's Wharf area might be better with kids. As for Ghirardelli, the Cannery and Pier 39, locals do go to Pier 39, less so to Ghirardelli and the Cannery. I had no idea they were converting Ghirardelli to apartments, and I live here!

Will you have a car or rely on public transportation?

FWIW, I would not stay on Nob Hill, because it's all residential/hotels -- there are no shops, sights to see, etc. And, true to its name, its the top of a VERY steep hill, i.e. no walking with small children other than around the block.

Also, the annual ice skating rink is behind the Hyatt Regency (and my office building), not at Union Square.

DMlove, there is an ice skating rink (enclosed) opened all year at Yerba Buena (Mission @ 4th St, on the next block past the carousel and bowling).

The Embarcadero skating rink is an open-air ice skating in winter.

Faina, I totally forgot about that rink! If I'm going to ice skate, I prefer outdoors, though.