I went to the IOW when I was a child and absolutely loved it. My memories are of the needles, alum bay and blackgang.
When I returned last summer with my family, including children and grandparents there wasn't a whole lot to do to be honest. I think we have been spoilt here with Chessington, Legoland, play farms etc.
However, we did enjoy pitch and putt at Browns golf 'course' in Sandown. Contrary to other posts - the needles - as they had the coloured sands, glass blowing, a few shops. Umm..didn't really enjoy Blackgang, my kids didn't either, I found there wasn't much to do - left after 2 hrs. Enjoyed Shanklin Chine village which was very quaint and had a few shops and quite oldie. Arreton Barnes craft village is nice for a couple of hours - thought was better than alum bay for glass blowing.
Sorry not much recommendations for indoor apart from pier at Sandown - typical pier 2p, 10p slot machines which the kids love.
Also went to Cowes for the day during Cowes week and enjoyed the town with all different shops/pubs/cafes.
I found that most places shut at around 6 which was strange for height of summer, unless we were in the wrong places!
I would suggest just to research before you go as much as you can so you have all the options rather than opinions that may be different to yours (wouldn't want to try and put you off something you may enjoy).
In summary, it is a very relaxing holiday and is a chance to spend time together as a family. Lovely drives too!