I brought everyone last year (wife + 7 and 4 year old), and they had a blast. There's no question the camping is tight, and people are on top of each other, but you get used to it pretty quickly. I'd never choose to camp there outside of this event, but in terms of feeling like your part of it all, and so your wife and kids can mingle with others of like mind and spirit, it's an overall great experience. My daughter still talks about some of the kids she met on the trails and played with at the swingset. My wife wasn't sure if she'd go on any of the runs - and ended up on two. And they're all coming back for more this year.
You always have the option of staying at a nearby hotel, or choosing a different area to camp and then meeting at the campground or at the meeting locations. But I think you'll be Ok at Slickrock - there's something for everyone.