As far as accommodations go, I would recommend La Casa Verde for you and your family http://www.lacasaverde.com.ec/hosts
While in Banos you will have the chance to sample a variety of different activities from various tour companies. Most of them are pretty close to the same. Rent buggies with the kids and tour the avenue of the volcanoes, take a zipline across the canyon, jump off a perfectly good bridge, rappel down waterfalls (depending on how old the kids are?) There are also a variety of day tours, rafting tours etc that you will find as you walk around town. Trip Adviser is a great way to see whats available but you will have more success when you are in town and can talk with the operators directly.
Hope that helps a little?