I have 2 boys 6&8 and have gone to Hawaii annually since they could travel (last 4 or 5 years). Gone to Big Island, Maui, Oahu and Kauai. Stayed at 5 star resorts (Sheraton, Hyatt, Mauna Luna) and at a Condo the last time. I had low expectations with Condos.
My fav set up? Condo.
Fav Island? Maui or Big Island. Kauai diving sucks, Oahu has traffic jams.
Fav Rental Car? They all suck. Jeep sucked the least.
Why Condo?
I do not need to get dressed and get everyone ready for meals, especially breakfast. There is enough room for everyone to do their stuff especially in the evenings... Kids play gameboy, wife surf web/read, me on balcony smoking pipe and reading.
No need to plan for 3 meals daily, just stock up on groceries and cook when you feel like it, order out or eat out if it suits you. Feels like Sunday everyday. Wake up whenever, mosey around the place, figure out what to do in afternoon (usually beach), then chill in the evenings.
BTW, a condo costs more than a resort for me (i have a bunch of hotel points). But condos do cost much less than a resort if you have to pay.
Maui or Big Island
Big Island is great, not too populated, great diving, but not so good beaches.
Maui has it all but is rather touristy, but i am a tourist
Kauai is not too bad but many dive sites/coral reefs ruined by the big rain they had recently. Still cool though.