Koh Samui is your best bet for weather.It will rain, but usually late afternoon, early evening. Saying that I do know that this year there was a few rainy days. DIY or package? Well, there is no right answer there. Find a package that you like and then see if you can do it cheaper DIY I have actually done my KS trips but not all my Thailand ones. Chaweng( away from the centre), Bophut or Mae Nam are what to look for.
Things for kids to do off the beach-
elephant trekking- you can do this one its own or usually you get an option of an elephant ride(about 10 mins) to the falls on the island tour.
Snake farm- you will know if they will love or hate that
Butterfly garden
Aquarian and Tiger zoo
But let's face it, children will always be happy with sand and water

Thanks Fiona....thanks for the info. I will check the rest of the site for any recommendations on places to stay.

I was there in 1997....no doubt the whole place has changed!!!