We found this terribly hard. A couple of points that we found:
You don't have to decide now who will look after your DCs when they are teenagers. Wills are really quite cheap and we plan to update ours when they (and DD1) are ten years old. We picked my Mum, as she is in very good health right now, it doesn't mean that she still will be in 5 years (fingers very firmly crossed), but that's OK, wills can change.
You don't have to have the same person/people to be financial trustees. As I said, my Mum is the guardian, but we felt that it would be too stressful for her to be taking care of the trust fund too, so the two grandfathers are the trustees (plus my cousin in case they get too old!). You can also do this if someone would be wonderfully caring, but has a history of spending the gas money on going to Alton Towers. :)
You don't have to hand over all the money to them when they are 18. Our lawyer specifically advised against this, and I agree with her. We picked 24 as an age that they are likely to be sensible enough to not go nuts with a windfall. We have made it quite clear to the rest of the family that the money is not to be saved for them, anyway, but to be used for the general expenses of raising two children. My Mum has made noises about not spending "their" money, but I have been quite clear that we got life insurance so that they won't be raised in poverty, not so that they can have some kind of windfall as "compensation" for losing their parents.
Which brings me to the last point - make sure that you talk to the potential guardians about how they feel, and what you would expect. We were able to put my Mum straight that she wasn't to bankrupt herself in old age, there might be other misunderstandings for you. We were fortunate that my Mum felt lucky to be asked, but we were careful to ask her in such a way that she didn't feel obliged - it's a big thing to take on, especially if you are older/have other children, which pretty much covers our entire family.
It sucks though, doesn't it? :(