[geeman]

I agree with all respondents:
Being that I have family in Florida, I used to have no choice but to stay "off site", as it didn't make sense to spend the extra money when all I really needed was a car...
However, once I tried staying onsite, it became part of the whole Disney experience for me. I've stayed at nice inexpensive hotels in the Orlando area, on International Drive, which were just fine. And I've spent the extra on Disney packages. Nothing compares with the feeling of the Magic. Plus, being able to get to your resort in no time is a major coup.
As everyone will attest, it's the attention to the little details that help very much add to the experience. Plus, not having to go very far after a long, tiring day (especially if you're taking a 3 year old!).
I think alexatdisney is completely on the mark about which days to stay where if you do decide to split it up. And trishb is right as well. Stay at a less expensive Disney property hotel and you can make both of you (kinda) happy.
Plus - is staying offsite REALLY saving you THAT much? The rates at WDW seem to have come down considerably (through the special deals) - If you could concievably stay at DAKL for 120 -- then how is staying at an 80 dollar place of less stature that much of a stretch?? Try to find yourself a good rate for the amount of days you want, and you might come away with a big bargain.
To be honest, I'm more upset at the ticket prices/options at WDW than I am about their hotel rates.
(However, that said, Jen & I are already thinking that the next time we go, it should be all out-conceirge service and all. I think I ought to start saving my Disney dollars now!)
Another consideration- If this is going to be your last trip for a while (say, until your child is older), then by all means, convince him to splurge, if you can do it.