Much depends on the interests of the kids, especially if they like history and nature. The weather in March might be a bit uncooperative, so have back up indoor options. Choose a hotel in Ponta Delgada with an indoor pool.
I can certainly recommend the underground lava tubes in Ponta Delgada (Gruta do Carvao), the volcano museum in Lagoa (Observatorio Vulcanologico e Geotermico dos Acores), the Pineapple Center in Faja de Baixo, Ponta Delgada (Centro de Interpretacao da Cultura do Ananas), one of the geothermal pools (I think Caldeira Velha in Ribeira Grande is the one they would like), an old blacksmith shop in Lagoa (Tenda do Ferreira Ferrador), the Science Museum in Lagoa (Expolab), the Observatorio Astronomico de Santana in Rabo de Peixe (near Ribeira Grande), one of the two tea plantations (one in Porto Formoso and the other is nearby in Maia)...are some of the many that should be on your list. The Museu Carlos Machado in Ponta Delgada is phenomenal for visitors of all ages. I could go on and on!
Hiking routes vary greatly, so take some time to plan one or maybe two that are easy, and not taking up more than a few hours. Everyone would like to see waterfalls, right? Many include them. The hikes I have taken generally take longer and are more strenuous than what is suggested.
If renting a car, choose one that fits everyone, including luggage. A nine passenger is what I suggest. Pay extra (it probably will be expensive) for a zero deductible insurance policy. This will ensure your peace of mind while exploring and is worth it
I have never used or needed a guide in over 30 years of visiting the Azores. With a rental, you will be fine. If you really want to hire one, search GetYourGuide or TripAdvisor. Some 1/2 day (or less) tours that are popular are ATV rides and horseback rides. Wait until you are there to decide any whale watching trips in Ponta Delgada. The weather can change quickly and the ocean can look placid, but actually will be rough.
At the top of this Portugal Forum is a post written by the webmaster regarding my Azores advice. The first 52 pages of my digital guidebook are free to read. Those pages will have just about all the logistical information you will need, including your car rental, hotel, driving, and hiking. The rest of the sightseeing pages are in the paid content. I offer over 15 days worth of walking and driving tours covering Sao Miguel.
Let me know if you have any more specific questions or ideas you want to run by me.