All the mountain towns are small towns
And Auburn is not in the mountains, Auburn is for all intents and purposes a Sacramento 'burb.
I say somewhere in the Tahoe area, either south shore or Truckee.
I grew up in South Lake Tahoe and have to disagree with most of what greatbasinguide said. Extension of San Jose??? I have no idea what that is supposed to mean. But no, it is not.
South Lake Tahoe is a small town, just less than 25,000 and it doesn't really grow, so it's not going to be overcrowded any time soon. It can't be, there are way too many regulations by the T.A.R.P.A. on growth/building.
It is absolutely a small town atmosphere but does get a good amount of tourism in the summers and slightly less in the winter/ski season. There is one high school, one middle school, one community college.
Also, it is not all that flat. Yeah most of the town is in the flat middle of the basin or along the lake but there are plenty of houses up in the hills as well ( I lived on a big hill near the high school, Gardner Mtn).
Most of the houses are pretty nice actually. Most of them are a bit older (hardly any new construction, no tract homes) and are a modest mountain style home (not big "McMansions" like we get in the city). I can only think of a couple small areas where there are some small and somewhat run down houses, still....not like there is any bad area or ghetto. There is not a huge middle class, it's mostly lower middle class to low income and then upper middle class to high income, not much in between.
And on the casinos....I mean there are only 4 of them, they are small high rises but nothing big, not anywhere even close to "Vegas scale in the mountains" come on... And the good part about Stateline is they are finally re-doing the areas next to the casinos and making a nice village area with shops, hotels, restaurants, etc. Actually bringing that area up to date with the rest of the society....
Also I do not think the North Shore is much nicer, it's just much smaller and much more of a vacation home area. There's not much of a community there, not like in South Lake. It's lots of very expensive vacation homes and not too much else.
Anyway, I do not mean to argue with you greatbasinguide ol buddy. I think you have a lot of great info on Truckee and NV but I disagree with what you say about South Tahoe as I actually used to live there and know it well (along with Truckee and the rest of the towns around the lake).
To the original poster....
I think South Tahoe is great as a small mountain town. There is a lot of pride in their town for the people that live there, being a "local" is a big deal and kinda cool to part of that community. Especially if you want to raise kids like you mentioned. It's not sooo small that the kids are completely bored out of their minds all the time and turn to tons of drugs etc... There is a lot to do really, especially if they get into outdoor activities. There is not much crime to speak of, no gang problems, etc.
I think it's a great place to grow up. Especially if you make it a point to take them outside of Tahoe and expose them to different places (Sac, San Fran, Reno, etc. etc.) so that they're well rounded as it is quite isolated living up in the mountains where things move at a different pace and quite a few years behind the big cities...
I actually moved to Tahoe after a childhood in Vacaville. I think it was a great experience growing up in Tahoe. It is really a beautiful area where you can experience so much. I mean it's world renown location. There is the lake, boating, beaches, skiing/snowboarding, hiking, mountain biking, camping, the snow in the winter, beautiful summers, small community with friendly people...
Anyway, that's my take. Hope it helps. Any questions specifically on South Tahoe and let me know.
p.s. driving in the snow and storms is not "nearly impossible", at least not after you live there and get used to it

A good storm rarely kept us stuck inside if we wanted to get out. I think driving in the snow is fun! But then I learned how to drive in Tahoe... A good 4x4 and good tires and you can through most, a 4x4 truck/suv up high with good tires and you can go through almost anything! and it's different then driving over the mountain passes, it's all slow speed and mostly flat so it's no nerve racking and dangerous like driving the passes can be.
