It's been a while but I did NY eve there about 15 yrs ago. While our hotel was pretty busy, the town itself was pretty quite but hadn't shutdown. There was plenty to amuse us IIRC. From the stories I hear from friends, I think I'd enjoy it even more if I were going again but that's just me.

Since then though they've gotten a casino and are trying to become more of a destination kind of resort for the surrounding states and province.
Try the following link and click on festival of lights
niagarafallstourism

I wouldn't expect a lot of families or children there around xmas time, particularly for the NY eve bash.

As for disadvantages - cold! Dress warmly for outside. The only thing to see outside though is the falls and be careful. The observation areas do get icy from time to time. No danger of falling into the gorge or anything like that but you can slip easily enough on the deck.

There are quite a few shuttle bus services to Niagara from Toronto and the from the airport. Expect a 2 hr drive. The King Edward people should be able to set you up.

If romance is a theme, the nearby town of Niagara On The Lake might be worth some consideration. It's an upper end cultured kind of place built around the local wine culture with an old english kind of theme to the town. Very Very nice in the summer. There's not much of that (culture) in Niagara Falls itself.