We have stayed at a Disney hotel, and it was great. However, we've only done it once, out of dozens of visits, because it's SO much more expensive.
I know that some people dislike the properties right across the street (Anaheim Desert Inn, Del Sol etc.) but that's usually where we stay. We like to be in walking distance; if you don't mind a shuttle (cost is about $3 per person, per trip) some of the properties outside of walking distance are nice, with cooked breakfast instead of danish and fruit. We like www.getawaytoday.com for packages including tickets and perks, and www.hotels.com if we need just a room.
Breakfast and dinner character meals book up fast, but there are some you can do for lunch (for instance, Ariel's Grotto). I recommend lunch, as it's less crowded and often available on shorter notice.
Fastpass is your friend! Use it whenever possible.
If you don't go back to your hotel in the middle of the day, I recommend going to Pirate's Lair on Tom Sawyer's Island (Disneyland) or the Redwood Creek Challenge Trail (California Adventure) during the hottest, most crowded part of the day, right after lunch. Both places offer shade, areas to sit, places to climb and explore and even wade in a small stream (RCCT). Best of all, the lines are short or non-existent.
DO NOT try to see and do everything - even if you had a week or more, it's impossible. Pace yourselves and have fun! Don't forget to get cute photos!