Thanks for the advice. I do not need to upgrade but it is my birthday soon and my wife wanted to get me a new camera. I do not print the images and normally view them on my computers or through my TiVos or my Apple TV. I am a stay at home dad. I also post some pictures on my websites.
I'm not recommending Canon over Nikon or vice versa, but I'm not recommending the D300 or 5D in any event.
For what you describe and your apparent budget, I think you'd be very well served by a Canon 40D and the following two lenses: a 24-105 f4 L IS and a 70-200 f4 L IS - all together a bit over $3,000. I think you'll enjoy using the 40D more than the Rebel - a little larger with better ergonomics overall in my opinion, the command wheel is a better interface, top info window.
I think you'd keep the 24-105 (a wonderful, wonderful lens, great color, contrast, sharp) on your camera most of the time. For taking pictures of pictures of kids, I find that a lot of compelling shots are often from a few feet away and between 70 to 105 mm with a wide open aperture. The f4 is enough to give a nice blur to the background and the range captures faces very well. The 24 is enough of a wide on the 1.6x sensor to take in more - e.g. siblings playing together and if needed you can zoom a bit with your feet. The longer end is enough to get some nice candids standing a bit farther back. The IS will help you get sharp photos at slower shutter speeds by overcoming camera shake. I find this so helpful in both natural light and with flash. Why with flash - I think you'll find that using the built-in flash or a speedlight in Av (aperture priority) mode will give you results that you'll be very pleased with. In that mode, the camera default is to fire enough of a flash to fill in the subjects with a soft light (in other words, it won't light the subject brightly and use a fast shutter speed which will make the background appear darker). The IS is nice because I find that having the flash balance with existing in-door light will often set a fairly slow shutter speed - the other day I shot with a flash for fill at ISO 1200 at f4 under in-door lighting. In Av mode, the camera set a shutter speed of 1/40th at 60mm. To look at the photo, the casual observer wouldn't think it was a flash photo because the lighting is relatively even with no bright / dark areas - the shutter speed was slow enough to allow a correct exposure for the ambient light of the background / surrounding area. The IS kept the frame sharp at the show shutter speed which likely would have blurred a bit otherwise as the shot was handheld. I like the bokeh (blur) of the 24-70 f2.8 L more and it is faster, but I like the 24-105 more over all for its range and the IS, which works so well in the in-door fill flash setting that I describe due to the slower shutter speeds. (You might find the following sites helpful for Canon lens reviews:
http://www.the-digital-picture.com/Reviews/Canon-Zoom-Lens-Reviews.aspx - I've put the link for the zoom lenses, but there is also a separate page covering primes; You might also like the reviews / observations on the Luminous Landscape site
http://www.luminous-landscape.com [which has all sorts of fantastic information - including a great video tutorial on light room and another on color management] -
http://www.luminous-landscape.com/reviews/#c; and also of interest:
http://www.luminous-landscape.com/reviews/cameras/nikon-d3-d300.shtml)
I recommend the 70-200 f4 L IS for similar reason - the range will make shooting unobtrusive candids possible and you can also use it to get some nice face-filling frames. You'll also find such a lens really useful for your kids outdoor activities (e.g. soccer games). If your children do a lot of in-door activity - e.g. gymnastics or ballet, you might like the higher motion stopping ability of the 70-200 f2.8 L IS more. It's around $500 more. The down side is that it is a bit heavier. Again, the IS will help tremendously in overcoming camera shake when shooting hand held.
With that set-up you'd have a stay-at-home dad set-up that would be simply fantastic. Resist the temptation to shoot in the 'green box' mode. You'll get so much more out of the camera if you shoot in aperture priority (Av), Shutter Priority (Tv) (or Manual) mode. I am assuming a lot in this response and one of those assumptions is that you shot JPEG or if you shot RAW that you shoot RAW and JPEG and usually use the JPEG images. Shooting Av, Tv, or manual mode will apply the in-camera sharpening, color settings, etc. under your "Picture Styles", is more intelligent with the flash, and gives you more control - Av - you set the aperture and it sets the shutter (when you want to blur the background or make sure everything from front to the horizon is in focus) and vice versa for Tv when you want to stop the drops of water from the hose flying through the air or that mid-air shot during dance, gymnastics, soccer practice. You'll like those results more than the green box output.
You may understand much of this, and my apologies if so. I'm really just trying to set out my rationale for suggesting the 40D-range body and two very good lens options for your described needs.
On the Nikon side, I think a D300 would be a bit of overkill but not a bad choice (get in there and experiment with the in-camera JPEG settings - from the reviews, it seems like you might want to up the sharpening and would likely want to add a bit on the color saturation side - experiment, don't assume that the camera comes set up to your liking, esp. with something like a D300, which is a body Nikon expects you tweak from what may be a bland starting point [again assuming you shoot JPEGs]). Truthfully, a D80 comes to mind as a better option for you. On the Nikon side, if you were to get either body, I would get a 18-200 VR lens. The build is not as robust as the L lenses, but it is very versatile and very well reviewed. You'd get the VR - Nikon's implementation of what Canon calls IS (described above) - which I think is so very, very useful for the reasons stated above. The lens is a bit slower and not a constant aperture across its entire range, but it's not bad at all. Or, you could get either of those bodies with Nikon's excellent 70-200 f2.8 VR (again, your posts sound like budget is not a big issue) and the new 18-85 f3.5 to 5.6 DX VR lens on the wide side. I haven't read great things about the 24-120 VR, but folks generally note that it's "fine" (see the
http://www.bythom.com review). (A side note, if you were going to get the D300, I note that BH has a nice package of that body with the generally well-reviewed 70-300 VR for around $2100).
At any rate - good luck. You'll have a fantastic set up either way. It's not like these sets ups would be limiting to photography as serious interest either. I've seen plenty of photos from 20D bodies in the pages of National Geographic over the past few years and that body is less "advanced" than anything recommended above. Don't fret too much. These things can drive you crazy.