Hi Kim and welcome to the camel
I think your on the right track, but just need to practice more. Sufficient ambient light would be the best way to get some nice candids in my opinion. That means no flash and shooting by a window with some nice daylight, or outside with a little bit of shade.
Posing kids is next to impossible, so just guiding them into a photo friendly activity seems to be the best bet in my very limited experience. I also put the camera on rapid fire mode and take tons and tons of pictures. Digital is free and because the children are constantly moving I find i get a very low success rate of good shots. The more I take the more I delete, but the more good images I seem to get as well.
If the lighting is to low to get sufficient shutter speeds then you can use the flash to help you out. I would turn the flash exposure compensation down a bit though as it tends to create hot spots on the skin when you are close to the subject.
I hope that helps you out and just remember, Kids are really tuff and post processing skills can do wonders on an ok shot and possible make it a very good shot
Best,
Jay