Osoyoos, while lacking in personality, is a small, relaxed, fairly simple little town. If you're looking to have some family fun on the beach, it's a great place for that.
You might try a road trip up through Keremeos to do some fruit-picking before you come home (I would imagine kids might find that to be fun). And Penticton probably allows more in the way of watersports than Osoyoos does.
As far as wineries go, Silver Sage and Burrowing Owl are probably the two "do not miss" wineries in the immediate area. Burrowing Owl is just beautifully scenic (although their wine is generally overpriced) and Silver Sage has some of the best adventures in wine tasting anywhere in the Okanagan. Other top wineries from Penticton down include: La Frenz (likely the best winery for white wines in the Okanagan), Hillside Estates (ordinary wine, but lots to try and has a decent restaurant), Elephant Island (one of two fruit wineries in the Okanagan that I'm aware of), Dirty Laundry (an actual steam engine goes through its vineyard, and you can buy tickets to ride it with your kids - I imagine a 5 year old and 18 month old would love this) and nearby Thornhaven (one of the best spots at which to bring a picnic for the patio aft,er your train ride) and Sleeping Giant (actually a fruit winery started by Summerland Sweets - a great place to get ice cream before or after your train ride or picnic), Wild Goose (an up-and-comer with pretty strong wines). I also suggest (for their wine) Hester Creek, Marichel, and Blue Mountain (by appointment only).
Actually, reading through that, it seems you could easily fill a day on a trip up the West side to Summerland, leaving the whole of Naramata for another day.
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