We're in a three bed maisonettes (top two thirds of a house) in zone 1/2. A glorious location, both central but near lovely parks (Regents, Hampstead Heath).
We have young DC and it is great for us. No plans to leave the city we are here for the long haul. We could own a bigger property (full house, more bedrooms) slightly further into zone 2, or similarly central but less desirable part of two. But the location works for us because:
As above, lovely local area. Loads of young families, excellent facilities. Families with young DC v local neighbours (though not all will stay long term, some renting, some in smaller flats and unlikely to be able to afford more space in the area) but great for now. Three lovely small parks, a two libraries, baby gym at an olympic training facility all in 10 mins walking distance. A trip to the Tate modern or similar is a fun morning or afternoon jaunt for us with the toddler.
Standing in our house to standing in office commute for both me and DH is under 30 mins (key reason we didn't buy a big house at this stage). Also only an hour to visit my parents of vice versa (eg we could buy a lovely house in south london but would then have a much more stressful two hour journey for family visits). Also good transport links for DH's family to visit (he's not a brit).
At the moment, we don't do a lot of cultural London (young DC). But did loads of that before having them. And last summer i was out, on a tropically hot day of the year. Walking back through covent garden at 9pm, i loved the energy of the city. I love that the best of culture, theatre, music, fashion, food, yoga is all there waiting for us. We can book a babysitter, go out to something world class and and home and in bed by midnight.
I hear people saying 'my lovely country house is only £100k'. True, but its not just the property, its what you do, both in work and out of it. We could sell up and buy a fabulous house somewhere. one of us to stop working. But if one of us did we'd be bored and miserable. Leaving London would require one of us to change career paths (would not want to commute with young DC) and neither DH nor I want to. Staying enables us to have challenging, fulfilling, well paid careers, AND quality time with the DC (e.g. I'm easily a higher rate tax payer even though i work part time - find me that outside of london and i might reconsider moving).
I bike around often and it enables you to discover secret london - the paths less travelled.