Sorry: Frontier Town.

I believe Miss Molly's on Chincoteague takes kids too.

We go to Chincoteague! Hotels are much cheaper, town is quiet and national seashore beach (with ponies) is nicer. There is a nice child friendly B&B called The Channel Bass Inn, the innkeeper is English and makes good scones. There are also some condo type units, often on the inlet, that allow weekend bookings.
We used to camp on Assateague before kids and may again. Best hotels for more northerly locations in my book would be Atlantic Hotel, then there's the big Holiday Inn at Ocean City with the waterpark pool.
If you could do a campground with cabins, rustic or not so rustic, you might try Frontier Village, it has a lively waterpark type pool for kids, but you will drive to the beach. Chance of a mullet or senior-in-an-RV sighting quiet high but it's still fun.

Are you talking about finding a place during the summer months or in the off-season months? A lot of the house rentals will do shorter period rentals during the off-season. Certainly wouldn't hurt to e-mail owners about that possibility.

Don't know if you can swing it, but skip the Delaware beaches and head south to Florida. My husband and I have found cheap flights and inexpensive rentals on VRBO.com, making it cheaper than the cramped, sometimes dingy, overpriced places in Rehoboth or Dewey or Bethany.

Hotel rehoboth. Shuttle to & from beach, nice breakfast, tiny pool, beach chairs & towels, etc. We had a suite w/ our 2 kids and it was perfect.

Atlantic sands hotel. It's not luxury, but you can't beat the location and the pool right on the boardwalk.

Brighton Suites Hotel.

Hotel Rehoboth but PP is right, it's not cheap. It is nice though. We stayed there last summer

Friends love the Hotel Rehoboth, but it's not cheap. Great location on the Avenue, though, and free golf cart to the beach in season.

We stayed at the Oceanus Motel in Rehoboth for a weekend last summer, and it was great. King bed plus a pull-out sofa bed for the kids, balcony with chairs out front for us to hang out and have our wine while the kids went to sleep. They have a lovely (albeit small) pool, and the location was perfect, one block in from the main road and two long blocks to the beach. We didn't use our car the whole weekend.

Thanks for the suggestions. I guess I was hoping for some charm.... Any hotel recs, please?

Hotels are the main option unless you have a friend with a place. You could also try VRBO and see if its possible.

Regular hotels? We stayed for I think 3 nights at one called the Beach View in Rehoboth that was nicely located. Sure, it was 4 people in a hotel room, but sometimes you gotta do what you gotta do.

Meaning, if I look at the b&b route, they either don't want kids or don't have family rooms, and if I go the rental route, they want at least a week. Should I just look at other destinations??