We stayed at the Disneyland hotel. We had a family suite, which was essentially a small kitchenette, living area with pull-out sofa with a bathroom, and a master bedroom and bath. There was a balcony off the living area.
It's really expensive for what it is (our suite was about $800/night I think), but you are paying to get into the parks early -- totally worth it, IMO -- and to be close, which is great if you have a LO who needs to nap. I thought the room and the hotel was perfectly nice...I would equate it with a Westin, perhaps? And our room was very spacious, and with two adults and 3 kids, we didn't feel completely on top of each other.
The grounds are nice and the pool area is really fun, though in January that may not be as important.
If you want to do the Lightning McQueen ride and you are only going for a day, staying at a Disney property is kind of a must. Google "how to go to radiator springs racers" and you can read all about it. There's a great website you can check out and make plans of what rides to do and when, they have an associated app that gives you real-time line wait times. If you can go the park two days....I really would.