We went to DLP for 2 days last October half term and had a great time. We didn't stay at a Disney resprt so no advice there, and my DD was only 18 months. But anyway..
Yes, it was busy, but no busier than going to any other theme park at peak times TBH.
DLP (is like Magic Kingdom in Florida). The queues for rides like Dumbo and Peter Pan were about 30-45 minutes. These are the longest. Parade was quite hard to get a good spot unless you wait in advance - can be chilly though and wet in October. The characters are all over though so loads of character spotting and meeting - get an autograph book if your DDs are into this. Our DD meet all the big characters very easily. As I said we had a great day.
Studios next door. This was much much less busy and we had no queues here for any show or ride. The longest queue we has was about 3 or 4 minutes to have our photo taken with Mickey at the front. Again most of the characters are here too and easy to spot and meet. The stunt car show is excellent here - your DH will probably love it The Donald Duck show and the 4D cinema show are fab too. And your ticket here gives you access back into DLP once Studios close.
As it is around Hallowe'en when you go they'll be loads of themed displays. The steam boat was dressed up tobe haunted, the parade was scary based, etc. IT was good fun.
TBH we didn't find any of the food that bad. It's the same kind of faire yu'll get any any theme park on the whole - burgers, hot dogs, fris, etc. unless you go in the main (expensive) restaurants. Unless you are that bothered I'd just go for it - you're only there for two days.
There are no picnic facilities within DLP at all, and picnics are not really allowed. TBH in October it'll be too chilly to eat outside anyway. Wrap up warm!!!
I am sure you'll have a fantastic time. Your 7 year old will be able to go on everything there (maybe not the Areosmith roller coaster though - do go on yourself; it's great fun and very fast). Your 4 year old can go on most rides, inluding the small roller coaster, but unless very tall for her age not the water rides, or the two bigger coasters.
Have a great time. I am sure you will. It's fantastic fun
Mind you - one warning. WE loved it so much we ended up going to Florida for 2 weeks this summer