We have cruised 4 times, but just as a couple. We usually don't spend much on the room, but I totally agree on getting a window -especially since you have kids. It really is worth the small increase in price.
My understanding is that unless you get a suite, you will end up with a very small bathroom and a small room. We were just prepared for, and dealt with it. There is such a huge jump in price to a suite, and for us it wasn't worth it. Also, the size also compares from cruiseline to cruiseline. We cruised once with Norwegian, and the room was ridiculously small. We haven't cruised with them again. Carnival's rooms are small, but bigger than Norwegian's.
As for location on the boat, just keep in mind that you pay for convenience. The lowest deck is cheapest, since you have more stairs to climb. You pay more as you move up the ship, so decide how much that is worth to you. I agree with trying to get close to a stairway if you can, but that wasn't a huge deal. Things are so spread out on the ship, that even if you are close to one thing, you will end up being far away from something else. We have never found this to be a problem. You are on a beautiful boat relaxing, who cares if you have to walk a bit to get somewhere?
Hope this helps! Have a great time!