Wouldn't consider full frame - too expensive for the benefits and a second hand 5D is getting long in the tooth. More recent cameras have good noise control and better autofocus speed (which would be good for photographing active youngsters).

The specs on the 550D, 600D and 60D are very similar but of course the 600D and 60D have flip out screens. The 60D will have superior handling and controls which is very important to me.

For lens I have the 50mm F1.8 and for the price is a great sharp lens which would be good for portraits. For versatility and quality I use an 24-105mm IS F4L canon - and it's a great lens for lots things - if you can afford it.

A second hand 24-105mm with a second hand camera (eg 40D or 50D) might also be an option.