Yup, Chris got it. Bounced flash, bumped iso... and gel the sucker if you need to (you probably don't NEED to, but it's a great technique to use for balancing flash + ambient indoors {You can actually balance for outdoors to, but generally not necessary})
Shoot those fast primes wide open and you'll be dealing with small dof. You'll probably want f/2.8-f/4.0 to keep enough in focus.
(PS, paint your kids 18% grey and simplify your life!)
For this kind of thing I like to use the 24-70/2.8L and an ST-E2 triggering a 580 off the ceiling (gelled down to tungsten). This allows me to keep ISOs low but still have the lattitude to zoom in - our Christmases usually involve a lot of kids and adults, so using a prime here is a little confining.
If you're really dying to buy a lens, the 17-55/2.8 IS would be a great choice in the same setup.
Love my canon 35 f/2. It is not the 35L f1.4 lens, and I think I paid about 250.00CND here on the buy and sell forum. It is always in my bag, and I use it tons
Thanks all for your most informative (and humorous, JeffBowser) responses. I plan on shooting w/my 10-22+580+lightsphere (no gel right now) PLUS some to-be-acquired prime because I just can't resist. Se have big family gatherings for both Christmas and New Years. Those are both daytime (albeit indoor) events, and I had planned on using the wide prime for those events as well. With 30+ people in the house, I wanted to avoid a big lens+big flash while walking around, so the prime will be nice (I can always shoot @ ISO1600 and f/2.5-2.8).
As far as white balance, unfortunately my kids aren't 18% gray unless they have the flu, and then I wouldn't want to take pics of them anyway... XMas morning is at the grandparents' house - maybe their ceiling paint is lead-based - that should give me a good gray reference, no? Seriously: I'm shooting RAW, and I have a Whibal, so I _should_ be able to correct the lighting for the most part.
Oh, and Sam Bennett: I agree on the 17-55 - if I were to spend in the $1K range right now, that would probably be my lens of choice, over both the 35L and the 24-70/2.8. Unfortunately, the camera fund is way down - just bought tripod+head.
time to go scan the buy/sell forum... probably 30/1.4. Thanks all!