Chell,
Don't fret about the formal nights. You can do it on the cheap, show off the progress of your fitness plan, and look like a million bucks! When you get close to the cruise, try to pick up an inexpensive, long, black skirt (tea or full length). Black makes everything look expensive, and you can mix and match blouses already in your wardrobe. Just my personal opinion, but if you go knee-length, then I think the top needs to be a bit more formal than if the cut of the skirt is longer. I found one at Marshall's for under $15. I got another one (dif size) on eBay. Now that one on eBay ($15 shipped) was an Ann Taylor, like new, and it retailed for over $100. I know this for a fact, because my SIL's bridesmaids bought that exact skirt. Another Marshall's deal I got was a beaded white top for $20 (regularly well over $100).
Formal for a man really does mean a jacket but not necessarily a tux. If he's military, they have dress uniforms, which is what my dh wears. He'll usually packs a dark suit and his dress uniform. However, if he doesn't own (and can't borrow) a jacket, then go with the dark slacks, tie, and long sleeved shirt. The people who violate formal night who are irritating are the ones who dress like it's casual night. I don't think any of us are griping about men wearing ties but not a jacket.
Kids are absolutely allowed always in the dining room! This is your chance to dress her really cute and get a great family portrait. Cruise portraits are less expensive than going to a local studio, and it's so painless to get your pic taken on the way to dinner, as opposed to getting fixed up expressly for the purpose of a picture. We had fun with formal nights, dressing our family to coordinate. We did a red and black night and a white and black night. The boys wore black suits (eBay and so cheap) and black ties, and we just changed the shirts. I already had a red and a white shirt to go with my black skirt. I picked up a dress for my dd (under $20 shipped - eBay). The kids got plenty o f use out of their clothes wearing them to church.