I'll put my vote down for Kota Kinabalu.
The TAR Marine Park 10 minutes from the city offers beach, snorkeling and plenty of life to entertain parents and kids.
The nightly markets are colourful places for browsing and eating interesting snacks and food.
Between the Rasa Ria's orang utan sanctuary and Lok Kawi zoo, you can get to all of Borneo's wildlife close up and then some (not quite the wildlife safari, but interesting and up-close for kids).
There are various cultural villages to choose from where you can get a glimpse of traditional games, food and customs.
There's a few sedate wildlife options your family will enjoy - especially the Proboscis Monkey and Firefly Cruise, which ends of with the magical sight of fireflies as you cruise back to origin in the dark.
There's food aplenty - from the Philippino markets to more local food you can manage on one trip, plus lots of international options from western, Korean, Japanese, Vietnamese to German, Spanish and Italian.
For family accommodation the top drawer is the Rasa Ria. If you want something closer to town try Sutera Harbour - about 10 minutes taxi ride from town and you can choose the resorty Magellan or the more city style Pacific - either of which offers plenty of resort hotel entertainment and food, whilst still being on the edge of town.
Otherwise, have a look at the Hyatt Regency Kinabalu for 5-star city accommodation, or the Promenade Hotel for more affordable options. Horizon Hotel and Ming Garden are lower grade but newer, so can offer good prices for new rooms.