As a year round resident of OCNJ I have a few recommendations. Since you are only going for a few days and not a week, renting a house may not be an option, it depends on when you plan on going. Peak season 99.9% will only rent for a full week. That being said if you do your homework and want to go midweek, you may be able to find someone who will rent since a lot of people who own and rent sporadically only come down on the weekends. So it may work for them. Look on VRBO if you want to stay in a home vs motel/hotel. The Flanders as you have discovered is probably the most expensive hotel in town.
As to hotels, if you are looking for best value/location/cleanliness, I would say the Oceanfront Motel is your best bet. Basic hotel/motel right on the beach. Best rates in town. If $$ is not a factor, I would say the Portocall is your best bet, they have a pool and its right on the beach.
Since you have a 7 yr old, the boardwalk is always fun, plenty of rides and places to rent bikes/surrys in the morning. Hike the beach at Corson's inlet in the morning, its all the way at the end of the island and there are no houses. Lots of things for a 7 year old boy to explore and find.
As for places to eat, most people who live here all say the same thing. The restaraunts suck. Since its a dry town, you can't even BYOB so this means anyone with a decent chef isn't going to open up in town. There are a few good places for breakfast though, Sunrise Cafe, Readys Coffee Shop, and Varsity Inn to name a few as well as the Windjammer Diner across the 9th st bridge. If you want donuts, forget Browns, its where all the tourists go and you will wait in line for 30-45 minutes just to get a donut. I think they purposely have slow service just to make the line longer so people think they are so amazing I must stand in line. Go to Oves instead. THey make the same, fresh donuts, the line is never more than 5 minutes and its also on the boardwalk, so you can hit it during your bike ride. If you decide to go there for breakfast, you will probably have my daughter as your waitress so make sure you leave her a good tip, SHE IS A HUGE RU FAN!! For dinner, as previously mentioned, Smittys clam bar, (also across the bridge in Somers Point), byob and good old fashioned seafood. Nothing fancy be prepared to wait though but you can drink outside while you are waiting and its right on the bay which is nice. On that same street you also have the Anchorage, good, reasonably priced food and bar. Same street, right on the bay is Doc's place, very good food, a little more pricey but well worth it. They also have outside tables right on the water which is nice.
