YES YES AND YES!! Santa Cruz is fantastic, epsecially if you get great weather (note that wind comes up at sunset - bring sweaters!). We just got back from our family trip and part of it was there. You have the Beach Boardwalk with lots of adult rides and lots of kids rides (my 2 1/2 y.o. son LOVES IT!). You can either buy an alll day wristband (better price) or tickets. There's the Arcade and the mini golf right at the boardwalk, too. The beach is great, bring your own lunch, sand toys, etc - water is not warm though. There's also the Roaring Camp Train near by. Capitola is a 5 mile drive and is a fun and funky town with wine tasting for adults, great beach area, and the famous "Pizza my Heart" parlor for pizza by the slice. Also, you can rent bikes and ride around. The downtown area is cute, but we hardly spend time there. Just remember, there are beach bums - like in any coastal town. Just walk past them.
There's only one "hotel" and depending on the size of your family you may not want to do that, but its called the "Dream Inn". We go to the Terrace Court Motel and get the big rooms in front with the full kitchen. It's across the street from the boardwalk and the wharf/pier, too. the pool is heated too. (there's restaraunts on there) There's another place called "The Breakers" we stayed at over Mother's Day - a vacation rental, also across from the boardwalk. Very Cute, but its on the third floor (strollers are a pain to get up) with difficult parking. There are lots of other motels and suits, but we really like being right across the street from the Boardwalk.
Gosh we'd love to go back. If you go, have a blast!!