I don't think the bad side of Salem has moved there. We've managed to hang on to our bad side...
I think Dallas is still quite cute. Compared to Salem, prices are reasonable, but I don't know what that means to you. There are many cute older homes still there, most of which circle the core of the city. I personally don't think there are any bad parts of Dallas, but I come from a bigger city perspective.
Dallas has grown a lot in just the 9 years I have lived in Salem. Many new subdivisions have gone in, new strip malls, etc. I still think it is a good smaller town. I don't think drugs are any worse there than anywhere else. Drugs are everywhere.
Due to the growth of West Salem and Monmouth/Independence traffic along the west and over the bridge has worsened.
As for kids, Dallas has the aquatic center...which rocks! (My kiddos are 8 and 6). I think Dallas is just large enough to have plenty of things going on for kids without having to travel into Salem for everything, but it does depend on their ages and what you like to do.