Where to sleep in Disney.... staying on property or off?

There are definitely no shortage of options to sleep in and around Disney world. 

Bay Lake Tower

The first decision to make is whether to stay on Disney property or off.  We have done both and while both have their advantages, we decided not long after we got married to buy into the Disney Vacation Club so that we can continue to be able to stay on property.  On property you can stay in accommodations ranging from value resorts to deluxe villas with kitchens and multiple bedrooms.  Off property the options are countless... tons of varying hotels, timeshares, and even private homes with their own swimming pools.   Disney provides their resort guests with several exclusive extras during their stay to entice you to stay with them. 

Advantages of staying on property:

1) Extra Magic Hours - each day one of the parks has extra magic hours.  What are extra magic hours? The park either opens 1 hour early or stays open up to 3 hours late only for Disney Resort guests to enjoy.  Although we haven't been taking advantage of the late magic hours since we had the kids (they usually run until midnight or 1am), we did take advantage of them quite a bit before kids.  You are able to get on so many rides in a short amount of time, which is especially beneficial at more crowded times of the year.  The early morning hours (which we definitely take advantage of more now with young kids) give you the advantage of getting a head start on the parks and getting fast passes for rides before they open to the rest of the public. 

2) Disney Dining Plan - this is a prepaid meal plan for Disney Resort guests that can be added to your room and park ticket package.  There are different plans for different appetites.  What we like about the dining plan is that it is prepaid ahead of our trip so we know exactly how much we are spending on food.  (Gratuity and extras are not included in the price of the plan.)  These plans are certainly not for everyone, but we do like the regular dining plan and usually get it for our stay.  This plan includes 1 Quick Service Meal, 1 Snack and 1 Table Service Meal per person, per night of your stay plus a refillable drink mug to use at your hotel (coffee, tea, soft drinks).  I would only recommend the plan if you are not planning to spend full days off Disney property as only Disney restaurants are included in the plan.  This is also probably not for you if you would prefer to bring your own food or not eat a large sitdown meal each day. 
Here is where the dining plan options are described along with which restaurants are included:
http://disneyworld.disney.go.com/planning-guides/in-depth-advice/disney-dining-plan/
Here you can find up to date menus with actual prices to see what you'd actually be paying for the meals:  http://allears.net/menu/menus.htm
One more added benefit of dining if you are staying on property...  the general public can book dining reservations and other experiences up to 180 days ahead of time.  However, if you stay on property you are able to book for the entire length of your trip (up to 10 days) 180 days from your check-in date so you get a head start on your meal choices.  Because of the popularity of the dining plan it is really best to make reservations for any table service meals that you'd like to enjoy during your stay. 

3) Disney Transportation - Disney will provide you FREE transportation to and from the airport (Magical Express) and between your resort and the various parks just for staying on property!  This enables you to fly into Orlando and not need to rent a car if you so choose.  Or if you drive, you don't have to drive to the parks.  And since we've traveled with larger groups, even if you do have a car and drive into the parks... if someone decides they want to head back to the hotel early or stay late or even head to another park they can take Disney transportation. 

4) Proximity to the Parks - you really just can't stay closer to the parks by staying off property.  This means shorter travel times to the various parks, which especially when traveling with young ones... this is invaluable because let's face it, they are only happy for so many hours before they are ready to crash!

5) Disney Hospitality - Disney is the happiest place on earth!  And their staff go through some of the most sought after training in the world.  The "cast members" really go out of their way to make your vacation more memorable.  I really just can't say enough about them and just love when we drive through our resort gate and the security person says... "Welcome Home Mrs. Hazlett!"

6) Free Parking - If you do rent or bring a vehicle and decide to drive to the parks instead of taking the Disney transportation, you will receive a FREE parking pass.  This is a $14 per day savings!

7) Souvenir shipping - If you purchase souvenirs in the parks and don't want to lug them around all day and carry them back to your room.... NO PROBLEM.  You can fill out a form and have it shipped back to the gift shop at your hotel free of charge!