Stay at the Crossroads hotel and have DH drive you to the beach to set up every day and walk back down to meet you.
The other hotels run $300-400 per night right now. I would rather spend that money on decent meals, Funland, Jungle Jim's, etc.

Last week of August is great -- many places are less expensive and it isn't as crowded as many public schools have already started. Brighton Suites Hotel has a suite with a separate bedroom and you get beach chairs/towels/umbrella so it is vey convenient for a short trip. It isn't too expensive and it is very kid friendly but don't expect a luxury place.

Stay at the Avenue Inn. It's one block from the ocean and they will actually drive you to the beach in their golf cart. The lobby is newly renovated and they serve free breakfast and wine and cheese in the evenings.

Tons of resources here:

http://www.cityofrehoboth.com/

DD could spend DAYS on the boardwalk (fun land, pizza, ice cream, etc). We go for a week each summer and love it.

Also, Cape Henlopen State park has a fun (small) nature center and gift shop. You can also borrow (not rent) bikes for the family to tour the park.

http://www.destateparks.com/park/cape-henlopen/nature-center.asp

we have a soon to be 4 yr old and a 19M old - we typically go to the E shore in NJ annually with family during the summer for a week but everyone is passing this year but our toddler loves water/beach. considering going to rehoboth maybe for 2-3 days - during the week or more likely weekend - not sure where to start in terms of figuring out best accomodations (ie not $$$$$) and suggestions in general of thing to do beside the obvious being ont he beach (ie food options). insights please? considering end of august timeframe.