For young kids like you have,
Disneyland is a much better option.
Transportation is not an issue at all in Disneyland. You can be back to your hotel in less than 5 minutes walking, compared to 30 minutes by bus for DisneyWorld (assuming you're staying at one of the All-Star resorts). Much better for naps or to save money by eating in the hotels or off-site. Downtown Disney is between both Disneyland parks, so it's close as well. I also feel that taking the buses at DisneyWorld loses the Disney feel. At Disneyland you walk from the parks right to your hotel inside Disney, never losing the feel.
Disneyland is not as spread out, thus less walking for the little ones. It's still plenty big to spend a lot of time there. We went for 8 days with my 6-year old, a 5-year old and a 3-year old. Perfect for them, they loved it. Stayed at the Grand Californian - and we could watch the park out our window at night.
At DisneyWorld - Epcot? Kids that age won't like it. You'll bore them the day you go there.
My daughter will be 13 next time we go. We are going to DisneyWorld this time as she is bigger and can handle it all. She will enjoy Epcot better at 13. Plus, we're not bringing handicapped grandparents with us, so it's no problem for us to all get around.
Note that many of the rides are different: In Disneyland, Raiders of the Lost Ark is a ride, not a show. In Disneyland, It's a Small World actually has it's own huge castle. The history is there too - you can take a tour and visit Walt's old office on Main Street. And there's Cars Land at Disneyland which doesn't exist (yet?) at DisneyWorld. Of course, there are so many other things at DisneyWorld that are only there.
I would always suggest someone to go to Disneyland when the kids are really young, where transportation is not an issue, and then when the kids are 8+ go to DisneyWorld.