Hi, I've been to Orlando loads of time but never at Christmas and I'm really jealous. I was hoping to go this Christmas but DH has put his foot down
Ref villas, look at www.luxuryholidayvillaorlando.webs.com/
this is a luxury 4 bed villa 4 miles from Disney with a private pool and games room and is located in a lovely residential area with a childrens play area about 2 mins walk from the villa. The rates are really good and can often work out cheaper than 2 rooms at the local holiday inn or similar.
Ref the parks, you HAVE to do Magic Kingdom as this really is the best one for children of that age. Animal Kingdom is also fab but as you are only going for a few days I'd probably give Epcot and Hollywood studios (formerly MGM) a miss unless you or DH specifically want to go.
Seaworld is another must do as the kids always love that and there is a lovely play area just for little ones called shamu's happy harbour. My DD loved it last time we went.
Not been to Universal for a few years so (we prefer Disney)and have never done the Islands of Adventure but I'm sure if you look at their websites you'll get lots of info from them.
Discovery cove is another fantastic place (although expensive) where you can swim with dolphins but the minimum child age to swim is 6 so probably not for you this time.
Loads of cheap places to eat out. Places like Sizzler and Ponderosa steakhouses are all over the WDW area (both close to villa I recommended) and the meals are really good value and kids under around 4 (I think) eat free. They do an eat all you can buffet as well as usual things like steak, chicken, salmon etc and therefore it is perfect for kids as there is always something that they will eat. We used to stuff ourselves silly there for breakfast when doing a 'park' day and no need to stop for lunch
Ref money, if you've paid for your villa, car (you have to have a car) and disney tickets in advance, you probably only need around $100 a day unless you are doing major shopping. I'm sure you'll have a fab time