I do a couple of trips to Lake Tahoe a year (summer and winter), and always get a house. With your family of five it's almost a no-brainer. You'll get something much nicer for significantly less money by getting a house, with the slight caveat that there's a bit more messing around involved to book the place, pick up the keys from the agent upon arrival, clear up your own mess upon leaving, and drop the keys back at the agent. On the other hand, if you just want a nice easy hotel-style experience then I guess a suite at the Hyatt won't kill ya.

It also depends what a "short" vacation is. If it's two nights then a hotel has something to be said for it, if it's a whole week the house is definitely the way to go.

I've swum in the lake in high summer and it's not that cold; mind you, that was way around the southern edge where there's enormous shallow regions which tend to warm up a bit more during the summer while the deeper parts of the lake remain close to freezing all year round. In Incline Village where the Hyatt is, I can't make any promises.

addendum: I just noticed you said three nights. I'm inclined towards getting a nice house around South Lake.