I have family in Madison, and other areas of the state. I lived there for several years in my teens and again in my twenties. I absolutely love the city and the area (esp southwestern WI). That area is the only place I would seriously consider moving back to in the Midwest. The city is quite 'big' for its size in terms of diversity and culture (American Players Theater !!), if you want that sort of thing. Great parks, outdoor opportunities, very picturesque landscape.
I really struggle with Great Lakes winters, but if you are from the Chicago area, you are used to that. And the real estate market is absolutely CRAZY in the Madison area (my sister just bought her first house and had to buy about 35 minutes north of the city), but the economy is consistently good.
No idea about 'family/kids stuff', but the schools are good, and there's tons to do, so I can't imagine that would be a problem.
It's definitely among the top contenders for locations we will move to if my husband ever decides to retire.