OK, I have done a lot of research on this subject having planned a reunion here in Chicago in 2002 and currently planning one in Washington, DC area for next summer.

While we have family coming from all over the US (and one family from the UK) and have chosen our locations based on good air travel like you have, we chose suburban locations for both 2002 and 2006 because in the short (3 nights) time we had, we wanted to focus on spending time together, not going to attractions. Suburban locations also had more "green space" options and activities (for 2002, Indian Lakes Resort, suburban Chicago).

Other thoughts:
I am not sure what your definition of "inexpensive" is, and I do not know what sort of quality your family needs, but downtown Chicago is definitely not inexpensive in peak times (including all summer and around Christmas), and off-peak times are getting more expensive as well.

One way to save a few $$ is to stay at a suites hotel that includes breakfast. Residence Inn, Homewood Suites, etc. For 2006, we're doing an Embassy Suites near Dulles. We chose Embassy Suites primarily because they have rooms for a dinner function (the other two I mentioned generally don't), and it's a little nice than the others. The suites also make is cheaper for larger family units that might have been inclined to get more than one room.

If you have a big enough group, try negotiating a group rate on rooms. You may even be able to get points on all the rooms (I swear that was not my primary motivator in being the negotiator with the hotels )

That's it for now, more later on a less eventful night!