I wasn't that impressed by Kasbah Tamadot - it felt very luxury by numbers and I got sick of bloody rose petals by the time we left - they were on the tables, on the pillows, in the loo, by the pool, bloody everywhere!
Riad Farnatchi is where we stayed for our honeymoon. It's lovely, the staff are so accommodating and it's right behind the souks so very central. The staff were great for arranging day trips, booking restaurants, giving us breakfast at 3pm, supplying endless (eyewateringly strong) G&Ts. I thought it was wonderful!
Another riad, run by a lady I know who has exquisite taste is Dar Jaguar and if I went back I'd stay there. She often runs offers for multiple night stays/multiple room bookings and it just looks wonderful.
As for things to do - I could spend 2 days wandering in the souks buying spices, but that might be a bit much for younger children. A day there watching leather being worked, bartering for things etc might be great fun though. I really enjoyed the Jardins Majorelle (sp) which was owned by Yves St Laurent. Really pretty for a wander.
The Marrakech museum was rubbish though - pictures of artefacts rather than the items themselves. I'd skip it, but it did have some nice architecture and some of the friezes were pretty. It wasn't worth the money in my opinion.
If you can try to get to the main square in the evening - the spectacle is something to behold and the food from the stalls is really good! We ate well there for not much money a couple of times and didn't suffer in any way. Guide books telling you that you'll get food poisoning are something to ignore.
We didn't really do a lot else, but you can organise trips out of the city into the Atlas to see villages which might be of interest. Go in a 4x4 though as the roads are variable!