Just wanted to post an update - Thanks for the great info. The weather has been great here and I highly recommend the North Inlet Campground of Delaware Seashore State Park The campground on this side of the inlet has only been open since March 2015, and it is setup very well.
Here's a Link to a Photosphere I created here.
Have seen a pod a dolphins right from our site! Only thing my family wishes is that the showers were a little more private - changing area is communal. Great pathways to the beach, and a beautiful playground for the kids on the side where the campground butts up to the Coast Guard facility.
The staff here are trying keep plenty of family friendly activities happening. Last night they had live music in the pavilion, and a (small) bonfire on the beach with toasted marshmallows.
Saw sometime in July they are doing a Seafood and crafts festival right here. Wish I could make it back down for that!
For eats, thanks for the suggestions and I took them all into account. Finally had to go with family likes and interests. I can say don't discount Dewey! We had a great meal at a Hawaiian themed restaurant named Nalu - great portions and tasty. Loved the ambiance. We did go for an early dinner (4pm) so YMMV.
Other eatery we tried was the larger Grotto Pizza in Dewey. They have a free parking lot on the side street (Read Street) they are on - almost missed it and was going to do meter (not much free parking in any of these coastal towns)when another patron coming out pointed me to the parking lot. Pizza was great with doughy, well baked crust. In Rehoboth, we stopped for a treat at the Fractured Prune Donut Shop. Fresh hot specialty donuts - these are more expensive than Dunkin Donuts, but they are amazingly good. I had a "french toast" donut and might get another one.
Went to the Nassau Valley Winery to partake of their offerings. Self guided tour was not as interesting as I hoped, and the wait to get a tasting was a bit long. They seem to have wines more to the dry side (we prefer dessert wines) but still bought a bottle of peach wine which will be good for dessert tonight. Grounds of the place were lovely to walk.
Tomorrow we are going to a Sea Glass and Art Festival - looking forward to seeing that.
Thanks for the suggestions - we're planning to coming back to the area again to check out more!