Thanks once again for all the replies!
I will certainly consider and look into Santa Monica. The exact itinerary here is quite flexible, and the only reason Laguna Beach was suggested is that a friend of my wife's from college lives there now ... so we would presumably hook up with that lady for lunch or something. But, not exactly the end of the world if we don't see her.
More than anything we are looking for a very outdoorsy type vacation -- ideal day for us would be to do an easy/moderate hike in the morning, eat lunch and poke around a few shops in a touristy area, and then kids spend a few hours in the water (ocean or pool) before dinner. (Ocean water temperature not a big concern -- we often go to Tofino BC in the early summer and my kids will do 4 or 5 hours in 60 degree water there when they have wetsuits on.)
Note that Hollywood is not high on my list of things to do, but my wife and daughter feel that if we're in LA we have to go there. Happy wife, happy life.