I LOVE Disney questions...they are my absolute favorite to answer! Anyways...what time of year will you be going? That changes some of my answers.
As for staying somewhere, I highly suggest staying on Disney property. The hotels are wonderful and even though you will have a rental, it is so much easier to take one of their buses, boats or monorails to the parks (plus it costs about $14 a day to park your vehicle). As to which resort, PM with what you are looking for, and guaranteed there is a resort that fits your needs! :)
As a quick note, Mickey's Toon Town will be closed during your time there (since it doesn't open again until 2012-2013), so don't plan on doing anything in that part of Magic Kingdom. I also suggest booking any restaurants you want to eat at now (if you are going within the next 180 days). The best ones fill up fast...again, PM me with what you are looking for, and I can give you my recommendations!
As for sights...anything and everything they will! There is absolutely nothing at either park that I dislike! Shows...all of the fireworks are amazing, and really any of the shows in the parks are worth your time.
With your one year old, just plan on having a stroller that you like, and you will be good to go. All you have to do with rides she can't ride is do the baby exchange (if both you and hubby want to ride)...it is really simple and will actually save you quite a bit of time at the park!
We go every year (sometimes more than once), and own a Disney timeshare, so I feel pretty confident in my Disney knowledge at this point. Please feel free to PM me with more questions (or answers to mine)...I LOVE talking about Disney! :)