My wife and I and 18-month old have been living in Koblenz for a couple of months, so here are some other tips (a bit late as a followup, but might be of interest to other readers!)
Koblenz itself is not such a big place, so activities right in the city are limited, but there's lots to do around the area, so some independent transport is recommended (car, but also lots of fantastic cycling if you can manage it with kids). Bear in mind everything in this post has been done in summer, so winter might be a different story. Ask me again in 6 months!
In the city, the Altstadt is worth a visit, particularly some of the squares, which are great place for a beer for the adults and an icecream for the kids in summer. As mentioned, if you like shopping, Löhrstraße is the main shopping street, with the more-specialty shops in the Altstadt at one end, and the Löhr Centre (a modern multi-level mall) at the other end.
In terms of dining.. lots of options. A recent favourite for us (considering the hours we can dine with a child) is breakfast at the restaurants in Firmungstraße. A buffet with cooked breakfast is only €7.50 at several good restaurants there.
A fun activity with kids is to visit Festung Ehrenbreitstein, the 18th century fortress which sites high on the eastern bank of the Rhine opposite the Deutsches Eck (the confluence of the Mosel and the Rhine). There is a small passenger ferry which leaves from the Koblenz side (€1 I think?) and then you can take the chairlift ("Sesselbahn") up the hill (adults €5), which is a thrill for kids. Make sure you've got one adult per small child if taking the sesselbahn. The fortress itself has a network of underground tunnels which I think you can see on the free tours. Entry to the Festung is currently free, as much of it is being renovated in preparation for the Bundesgartenshau in 2011.
There is also a nice open-air pool in Oberwerth (a little bit south of city centre) which is a 15-20 minute walk from the city centre, or take the number 1 bus, or drive (there's plenty of parking reserved for users of the pool on an adjacent street). Entry is cheap and there is good waterslide which is free. If you'd like to picnic, the Rheinpromenade in Oberwerth just south of the pool is nice. Big green spaces on the riverbank, you can watch the river go by, and there are a couple of playgrounds for the kids too.
Movies: there's a big cinema complex called Kinopolis in the Industriegebiet (northern bank of the Mosel) or a couple of cinemas in Löhrstraße. Not too much in terms of arthouse or original version though (original version listing for Kinopolis here:
http://www.kinopolis.de/koblenz/spielplan/english.html)
If you've got wheels, get out and see some of the castles. Marksburg (in Braubach, 15 minutes S by car) is truly medieval and awesome, and Stolzenfels (mentioned above) is beautiful.
Fortshaus Remstecken in the Koblenzer Stadtwald (city forest) has a small Tierpark which is a favourite with young children -- tame deer, goats, etc., plus pony rides during the summer.
http://maps.google.com/maps?f=q&hl=en&...oblenz,+Germany . Car required, or city bus 610, 620 or 621 (although I'd ask the driver to drop you at the correct stop).
A few others on our list we haven't got to yet.. the Zoo in Neuwied, and cycling up the Mosel.