New Buffalo with kids
There is lots of fun stuff to do in the area. We stayed at the Harbor Grand Hotel, probably too expensive, but quite nice. The indoor pool is one of the best for young kids we've seen - 5' at the deep end, 3' at the shallow end. We ate at the hotel restaurant, too expensive, but the steaks were huge; Rosie's, a nice, decently priced place on Whittaker (a main street); Hannah's, a very nice, expensive dinner place also on Whittaker; and El Rancho Grande, a slightly tacky Mexican cuisine place, decently priced, and on Buffalo St. (the other main street). All of these were within walking distance of the hotel.
I didn't like New Buffalo (NB) the town all that much. In Ann Arbor, you get used to being able to comfortably walk or bike places. I didn't try biking, but the walking in NB was fairly miserable. Do yourself a favor and either don't expect a walking friendly place or plan to drive. In either case, take a few minutes to look at the grid street layout. We walked to our restaurants along the main streets and felt like pariahs. Then we realized we could use parallel residential streets which were much more friendly and scenic.
That said, we found some fairly nice things about NB. It's not a big town, but there are a number of good restaurants, the beach there seemed nice (we went by it), Marquette St. is a wonderful place to run and probably bike (it's a bike route), and prices weren't outrageous in general. More on the cool destinations in the kids section.
You can tell that there is a good deal of Chicago money in this town. The piers are loaded with nice yachts, and the homes along Marquette St. are impressive. Marquette is closed to non-resident auto traffic, but as noted above, a great route for walking, running, or biking. It's really too bad the part-time residents don't replicate some of Chicago's character in New Buffalo's downtown.
"Things to do with kids"
Warren Dunes State Park, with towering sand dunes and a wide beach, is about a half-hour north of NB. I recommend you take the Red Arrow Highway instead of the expressway. This road is a major part of the character of the area. The surrounding antique shops and converted gas stations give you some idea what this road was like before the expressway went in. There are some great pictures in Hannah's of the area and the Red Arrow Highway early in the last century.
Warren Woods State Park is almost due East of NB. The old-growth forest is incredible. Bring your bug repellent and imagination. The entire area once had trees as big as these 80-100' giants.
The Cook Nuclear plant in Bridgeman supposedly has really interesting tours. We haven't done this one yet.
The piers at NB have one great attraction for young boys that most people won't notice. There is a huge floating crane docked just west of the Harbor Grand hotel. You can get about a stone's throw away from it from the sidewalk. A crane that could pick up your house on a barge the size of a small soccer field!
There is a large produce stand at the Northeast corner of the two main streets that's both fun and cheap. Pick up some cheap local produce while you're in town.