Legoland is really cool, especially for the ages your kids are. I think you would really enjoy it.
The fancy hotels nearby ARE quite expensive, but there are also a couple Motel 6's literally RIGHT there across the freeway (like less than a mile away). And yes, you could walk from there if you really needed to, but I'd hop in the car and pay for parking if you can afford it. (Volvos get free parking at Legoland, just an FYI.) Check the reviews online to see what people think of those hotels. And you could stay in a nearby beach town down the road, they are all pretty nice, like Encinitas, Leucadia, Del Mar, La Jolla. The only neighboring city that still has questionable areas is Oceanside, but it's cleaned up quite a bit since I lived in San Diego 20 years ago.
What parks give you free admission when you buy the Legoland tickets? Is it literally 4 free tickets for every admission you buy? I might have to do that! SeaWorld is just down the freeway about 30 minute drive, and it's super cool now, they have WAY upgraded that place.
Also, there are great family beaches, and you might want to take a surfing lesson at La Jolla Shores. I own a surfing instruction business, but unfortunately we are 1 hour 45 minutes away in Los Angeles, but I could probably recommend a good business that teaches in La Jolla.
BTW, the deal you found sounds fantastic, but other Legoland deals I am aware of are homeschoolers get in for $20 on Mondays during the offseason. Also, if you have a subscription to Lego magazine, they usually send buy one adult, get a child admission free coupons with every issue. I probably have a couple if you need them. Feel free to email me. We go the homeschool route when we go because we are homeschoolers. Have fun! :)