A victoria sponge will be absolutely fine, even when iced. Some madeira recipes result in horribly dry cakes so unless you have a tried and tested recipe then stick with what you know! I only ever use victoria sponge, even for fancy carved cakes and have never had a problem.
I use a 6 egg mix for each layer on a 10" cake which gives a lovely deep cake, but 5 would be fine, especially if it's just for dcs; no point wasting really good cake on them!
To achieve really smooth icing you need to spend time on the cakes themselves first.
Cut the hump off the top of each layer, making sure that each one is the same height all the way round.
Cover the cut section of the bottom layer with buttercream and cover the cut section of the top layer with jam then turn the top layer over so the jam is in the middle of the cake and the lovely smooth, flat bottom becomes the top.
Spread a thinnish layer of buttercream over the whole thing so it looks smooth with no obvious dips, especially around the middle.
Knead the icing then roll out so it is 5mm thick. If you roll it too thin it will show every tiny lump and bump but 5mm covers most minor imperfections.
Carefully lift using a rolling pin and drape over the cake, smoothing the top with the palms of your hands. For a really professional finish, invest in a pair of smoothers and run them over the top.
Smooth the icing down the sides, pulling out any pleats from the bottom edge as you go.
Once it's down the sides, use the flat of your hand to push the icing that's lying over the board towards the crease between the board and the cake then trim the excess off using the tip of a sharp knife.
Smooth the sides using the palms of your hands or the smoothers and there you are!