I would consider basing out of Trier. You're much more likely to find the kind of accommodations you're looking for there. You can easily find apartments for parties your size for less than $200/night on FeWo. And from trier it's easy to go down the Mosel. Plus Saarburg is just 15 minutes away.
Saarburg is a good option for a visit. The old part of the town is on a ridge above the modern city, which is why it has the waterfall running through it. The castle has a good view, there are numerous places to sit and eat, and it's not on everybody's list. Plus you have the Rodelbahn and the Predatory Bird park for the kids.
Trier has enough to do that you could easily spend all your time there. Roman ruins, the old town, the Dom, the parks, etc. All of this takes days to appreciate. Take the kids to the palace garden behind the Rhinish Museum. For something most people don't even know exists, from the Roman Bridge go to the MBZ dealer (which is just around the corner from Karl Marx's house) and then turn right walk about 50 yards and look left. That huge WWII flak tower is almost never visited by tourists. The advantage to Trier is that it will have more to do after 5pm than any of the smaller towns, and it's actually less expensive.
Do go to Bernkastle-Kues. You'll have tourists, but also the castle, the old town, and the river. If your party like old cars visit the Zilinderhaus. If you want a really good place to sit and watch the boats while grabbing a snack or a beer, visit Kloster Matchern.
If you Google flea markets on the Mosel you'll get a list. There's one every weekend, all summer long. Also wine fests, and other events. But parking can be hard to come by. And the road along the river is very slow; the train is faster. Gas is running over $10/gal right now and that's not going to get better soon. Make sure you pay for parking, a ticket is expensive. 1 & 2 euro coins are good for this.
