Oh yippee! This post is right up my alley! I've been going down to the Panhandle for 8 years now and LOVE it. We have always stayed at Sandestin, in a Beachside II condo. This year, we are staying at the Dunes, in Seagrove. It is between Seaside and Rosemary Beach. We are headed down June 6th for a week. Here is our condo we have for the week:
www.vrbo.com/54310
Another great memory maker is getting your photo taken on the beach. There are some amazing photographers there. We went the less expensive route, through Sandestin. They have Great Outdoors Photography there. Very affordable portraits, taken on the beach. You can check your proofs usually the same night in their Kiosk. We'll do that again this year.
http://www.greatoutdoorsphotography.com/
Destin is crowded, which is why we liked Sandestin. It's further down 98, gated. The condo we have always stayed in was on the ground floor, directly in front of the pool, and steps from the beach, literally. It was great when my daughter was smaller, convenience wise. (she was 7-14 when we stayed there) Lots of "in and out" of the beach and pool, so this came in very handy. I'd probably be afraid with a 3 1/2 year old, for fear of them getting out and going to the pool without adult supervision.
The beaches at Sandestin get very crowded as well during the summer months, during the afternoon. Morning and late afternoon the crowds really thin out.
Sandestin has some great family events. Concerts, movies at The Village of Baytowne, which is part of Sandestin. It's great if you like to play golf, bike ride, etc. We do love it there, but are spreading our wings this year

It's close to 30 A, which leads to Seaside, etc. Here is the link to Sandestin Resort :
Sandestin Resort: The Ultimate Golf and Beach Resort in Sunny Destin, Florida
Your little one would love Fudpuckers in Destin. The kids can feed the alligators. Not wild about the food, but the kids love it.
I LOVE Seaside and it IS very expensive, but I'm sure it is worth every dime.
Seaside We always go hang out there and eat, shop and watch the movies in the park. Be sure to visit Modica's Market. They have the best muffins, etc. I love hanging out in there. There are some great shops in Seaside as well. They have an adorable children's clothing store with some unique clothing and the cutest swimsuits for little ones!
There are so many great little Restaurants up and down 98 and 30A. We have rented a pontoon boat, taken Dolphin cruises and rented Jet skis to go find Dolphins. All were quite fun. When my daughter was younger she loved the glass bottom boat on the Dolphin cruise. Now, we do jet ski's.
We have always rented our condos thru
www.VRBO.com (Vacation Rentals By Owner). They are typically much less than many of the rental agencies. We have always had a wonderful experience dealing with the owners. Just make sure they have plenty of photo's. If there aren't interior photos, beware! Be sure to ask if they are "on the beach" or near the beach. Some owners say "steps to the beach", which could mean across the street.
I just realized how much I have written. Oops! Can you tell I love it? You'll be there in less than 7 hours, easily. Be sure to stop in Georgia on your way down and pick up some peaches. Delicious! You'd better book your condo soon, since you are planning on going Labor Day. Have a great time!