I agree with proud polynesian - definately Castaway. Just returned from a weeks break there, although we didn't have our children with us. It is very children friendly, they have a kids club and baby sitting services. There were many families there during our break and at no time did it feel overcrowded. There are loads of activities, lots of free activities and lots of pay as you go activities, but there is no need to utilise these if you are on a limited budget. It is only a short boat trip and it is also a good chance to view some of the other islands as you go :)
As I said, a week there and we spoke to lots of the day visitors and some others on the boat coming back that were day trippers and they all said they were sorry they had stayed on the main land and not ventured on to an island for the full duration of thier holiday.
We did notice lots of building activity in Denarau, not sure if it will all be over by Jan 07, but possibly not given the slow I'm in Fiji Time rate the lovely Fijians work at :o
My personal advise - do an island (if budget allows do Castaway) but definately get off the main land :)