I've stayed at Humphrey's Half Moon Resort a couple times. It's not on the beach, but it has a great pool that kids love. It is right on the water with a spectacular view of the city too. Pretty central as well.
As for the city, there's a ton to do. Seaworld (that is, if you're not against captivity of orcas), the zoo, the aircraft carrier is a must, eat Mexican in the Gaslamp District every night, Padres game... I could go on.
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