I think your kids would love a cruise! There is loads to do on board: swimming pools, play areas, activities, cinemas, ice rinks, climbing walls - absolutely tonnes!
The last cruise ship I went on and 15 floors and was bigger than any hotel resort compound i've been to so I highly doubt your kids would feel confined.
We did Eurocamp near Venice a few years ago, that was a fab holiday for kid as the site was directly on a beach, loads of pools and activities, near a town, near Venice - fab!
Last year we, in our madness, drove to Serbia and camped in Germany near the Black Forest amongst other places, again, the kids absolutely loved it. Germany was lovely, fab weather but I would not say it was cheap what with the Pound against the Euro.
If you want all-inclusive or half board so you get more of a break then i would suggest Turkey or Bulgaria (I know when I was looking for 2 week hols in August with 3 kids I could not get anything under £4.5K which is why we went to Eurocamp and that cost £1200 for two weeks including flights, plus food).