Hope you get it sorted today @MummyChocolateMonster.
You’re quite right to stand your ground. Best to do this with the company you booked with and paid. It’s their problem to sort out with the hotel. Also inform them of the poor service from reception, having been made to wait hours.
Always remain calm, respectful and polite, even in the face of rudeness or poor service. Simply say you paid for a two-bedroom apartment for four (effectively) adults. Beds in a kitchen/living room aren’t a ‘bedroom’ in any country. You expect what you paid for, even if they have to move you to an equivalent hotel, flat or house. It’s their problem if it costs them more to honour the booking.
Focus on moving forward rather than going over what’s already happened (e.g. being insulted by being told it’s an upgrade). It may help to use emotionless ‘business’ language, e.g. “How will you rectify this?”, “How will you honour my booking”, “What are you able to offer me?”, “What’s your solution?”, “How do I use your complaints procedure”. Summarise everything they tell you by email, so they can’t so easily fob you off, can’t later claim they told you otherwise, or it was a ‘misunderstanding’. Shows you’re serious and have a good case for a refund.
You could research other places nearby that are available and ask them to book you in there.
Also worth remembering the risks of sleeping in a room with any gas appliance. Does the kitchen have a cooker with a gas canister or gas boiler?
It’s frustrating to have to deal with all this after travelling and on the first days of a trip, wasting time to relax and explore. But I’ve done it a couple of times (even back in pre-mobile days when I had to use a pay phone to call UK) and ended up with wonderful accommodation and enjoyed the rest of my stay much more than if I’d stayed in the unacceptable crap they’d initially offered.
If you really have to stay there for another night or two, try to focus on the positives. Arrange the beds and baggage as best you can to be comfortable. Maybe even move the furniture around? Put the double bed in the living space and the singles in the bedroom, so the kids can sleep in? Go out enjoying yourselves and just use the accommodation to sleep.
Good luck 🍀