Can the parents guarantee that their children will behave? Banishing the parents as well to coach class would seem to be fair.

You have a point that just quarantining all people with children to a section may be cruel and harsh punishment for some.

The correct way to handle this is to have a "child zone" that is specially selected or designed with good sound proofing. It does not even have to be contiguous rooms. Just a selection of rooms that are least likely to disturb others, not have connecting doors, etc. Ideally, all rooms will be so sound-proofed. At the minimum, the hotel could prepare some rooms that way and allocate only those rooms to people with children. They should have sufficient of these so that there is no likelihood of an overflow. They could, of course, overflow people without children into those rooms so it isn't as bad as a smoking/non-smoking division.

In addition, I would also recommend that they have child-free zones to accommodate people that would prefer not to have children around them for many reasons. Some hotels do this already informally on certain floors.