Certainly 5 of you on that size boat raises questions of personal space, but you know your family best and how compatible everyone is so you should let this be your judge. And, I've always told friends that every boat is going to feel tiny once you leave the dock. Rather, it is the expansiveness of the scenery and places that you stop off at to explore that push out the dimensions of your living quarters. I know that when our kids were that age, they enjoyed the cacoon feeling of the cabin and if, as it sounds, you are used to camping together, that should go along way. Not sure what entertains your kids, but for ours, they really enjoyed towing little boats off the stern. I made up various simple designs with wood or you can buy little plastic ones. They spent hours at this and enjoyed crashing them into each other. One of ours was a real avid reader, so that was easy too. He really took to the concept of a journal. A pair of binoculars and/or a field guide reference would be good. Getting them time at the helm or helping with tacking, anchoring decisions, and passage planning is helpful all around. For our other son, collecting little souvenirs along the way was entertaining and important for him as this helped him get over the concept of moving from place to place constantly. They varied from touristy things to beach flotsam to postcards-something that can help them cherish the memories when they get back home.
More than anything, if you and your wife have the desire, then get out there and do it regardless of the size of your boat. Your kids are at a great age for it and if you two are having a good time, your kids will take this as their cue. Good luck!
Thalia - The Grimmett's Sailing Adventure!