No, it wasn't heavily damaged. Most of the hotels and condos that were damaged have been repaired, are spruced up and better than ever! We've heard we were going to have a high influx of new tourists due to the damage to Gulf Shores and Pensacola Beach and that seems to be the case. Great places to eat (where the locals go) include Old Bay Steamer on Okaloosa Island, Magnolia Grill on Brooks St. in Fort Walton Beach, Staff's Seafood on Hwy 98 in FWB, 790 North on Beal Pkwy in FWB, Dewey Destin Seafood on Calhoun Ave just over the bridge from Okaloosa Island into Destin (tables out on docks over the water - fabulous view and great food - must try the Grouper Parmesan!), McGuires Irish Pub in Destin (fabulous view of sunset over the Destin bridge from upstairs), Nick's in Basin Bayou (east of Bluewater Bay on Hwy 20 - north of the Bay). The Boardwalk on Okaloosa Island is a great place to take kids to play...several resturants, shops and a playground on the beach...always something going on. The Gulfarium is usually a good place to take kids, but it's not back to full steam and 2 may be too young to get anything out of it. You might want to go to The Zoo in Gulf Breeze...very kid friendly. Also, a great Children's Park in Niceville on Partin Drive beside City Hall if you want something other than the beach to do one day.
Hope you guys have a great time!