San Diego is one of my favorite cities in North America. If you want to stay at the beach, check out Coronado Island. The old downtown area there is really cool and the beach is top notch. As for things to do, Petcock Park, home of the Padres is really cool. Even if you don't like baseball, watching a game there is a blast. Check out the Gaslamp district in downtown it's where all the dining and entertainment is. It can get very lively at night (not sure if it's somewhere to take the kids in the evening). In terms of good restaurants, I'm a huge fan of Hodads (great burgers, was featured on Triple D) and Basic Pizza (maybe the best pizza I've had).
Enjoy
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