We love Cape May, NJ, and it's a short ride up the coast to Wildwood for your kids as NRSKaren mentioned. Cape May itself is a less commercial shore town with lots of victorian B&B's as well as conventional motels. They also have a boardwalk (well, actually, macadam) with a few arcades and restaurants. Here's a site that'll give you some info. http://www.covesoft.com/Capemay/
We also discovered Cape Cod, MA and have been staying in Orleans (on the east coast) for a post-Labor day vacation the past eight years. (We like staying there as Orleans is a confluence where Rtes. 6, 6A, and 28 converge, so you can easily travel north, west or south.) I'm passionate about the Cape, but we go off-season and don't have children, so they may not like doing the same things we do. We mainly enjoy being out in nature, hiking, walking the mud flats on the bay side at low tide (you can walk out almost a mile with the water in places only going knee-high!) Also, the water's calmer and warmer than the ocean.
I've read that southern Cape Cod (off Rte. 28) is better for families beacuse there are more kid-friendly attractions (Miniature golf, go carts, etc), but we don't care for the tourist-trappy, commercial aspects of that area. If you wanted less commercialism with access to the touristy things, Chatham in south-east Cape Cod could be a compromise. Here is a web site to tell you a bit about the Cape, but if you can do a websearch, you'll find plenty of info. on both of the Capes I've mentioned. http://www.c4.net/peace/cape.htm
I have lots of books on exploring Cape Cod and I'd be happy to give you any information I can, too! (I originally found a lot of information at the library and can also recommend my favorite Cape Cod travel books that I've bought, if you're interested.)