it can fill up if you install the games to the HD, but you dont have to do that (thats the reason my brother suggested i get a 250GB, i dont like load times XD). the sonic game they want is Sonic Generations, and it is indeed not on the wii.
if you were a playstation guy and still have a lot of the games, i suggest you buy a used PS3 rather than a new one or a 360. for one, most of the 360 exclusives are M rated games that your kids likely wont be playing for a while, so unless you REALLY wanna play gears of war or something you wouldnt miss them. as for the used ps3s, an original 60GB one is your best bet. all of those are fully backward compatible with both ps1 and ps2 games. many, but not all, 80GB ones are fully backward compatible (some wont play ps2 games) so unless you knew exactly which model you got it would be a crap shoot. new slim ones can only play ps1 games and not ps2 games. ive heard the older ones are also a lot more reliable than the slim ones. ive had my fully backward compatible 80GB one for 3.5 years and its been through several moves without so much as a hiccup.
im not as knowledgeable on the 360 since i dont have one, aside from the fact that the new black ones are much, much more reliable than the older white ones so i wouldnt recommend getting a used one. as far as kinect being fun, like i said ive seen both positive and negative things about it, but since you already have a wii you probably dont need another motion control setup. some of the games/game types are redundant between the two (such as nearly all the dancing games). i myself wouldnt get one, but its personal preference really.
btw monster, i like the new name lol
