Congrats! They're so much fun. Can you expand the storage with an SD card? If so, it's less important how much storage you have since everything you're considering is decent sized. If there's no ability to expand the storage, go for bigger.
My phone's storage capacity is absolutely tiny, about 160 MB. I have a 16 GB SD card in it, and before buying the phone I thought I'd be able to just put everything on the SD card. Unfortunately, not everything can be moved; many of the apps that came pre-installed are things I won't use, but I can't uninstall them or move them to the SD card. They take up more than half of my memory! When you download an app, generally a portion of it has to remain on the phone's HD even after you move the bulk of it to the SD card. So I can keep all my photos, videos, audiobooks, etc. on the SD card, and the HD is devoted to apps.
ETA: My kids don't mind the small screen for videos, but Netflix works very slowly on my phone so we don't use it much.