Mrs. Beautiful,
I agree that spending time together as a family is the best way to spend Chanukah (and most other holidays). And young children often get really excited about seasonal tableware (another way to find these cheap is to buy at the end of the season for the next year). When my children were very young we would give them little treats on different nights of Chanukah (though not every night), for example chocolate coins or small stuffed animals.
When all my kids were young they preferred to spend time reading books out loud or playing games to eating homemade latkes, so I spent the time with them & we ate frozen latkes. Now that they are older, they appreciate homemade foods more, and have the patience to wait for them to be ready.