We were in a very similar scenario a few months ago. We have a similar SUV, 2006 LR3 V8 and did not want to buy a new TV. We wanted the smallest TT that would fit our needs and we have three kids! I was very safety conscious and did a lot of research on the weight limits and optimum WD/Sway setup.
We decided the 23D was the biggest/heaviest one we could tow with our car. I think I would prefer the 25 RB for the back-facing dinette and maybe the bathroom setup right outside the main bed, other than that, it really doesn't provide any additional sleeping area for the kids
so they would NOT benefit from the bigger one.
The 23D bed is
small but not uncomfortable. I questioned weather the hubby (6') would be OK with it and we have both been totally fine with it. I like to cuddle, but you can still both sleep on it without touching if you really want to. I don't think it's hard to make (which I was also concerned about), ironically, because it is small, so it's really easy to reach the other side. We have a light down comforter on it with a duvet. I think it's a bit weird that couples prefer to sleep in separate twin beds! I guess this point is really up to individual preferences.
Kids are 5, 7, and 10. The two younger share the dinette bed. We pulled out the other bed for the 10 y.o. the first time and then decided it really wasn't necessary. She just sleeps on it as a bench. At some point, the boys will probably be too big to sleep together but it will be quite a while before this happens. We've actually already bought a 5-person instant tent for whenever they decide they want their own space to sleep in. However, the front dinette/bench area has a really spacious feel for sleeping, more so than the actual bed in the back.
The only drawback to kids in the 23D vs the 25 I see is the bathroom is right next to the bed. I want some alone time in the morning so I've tried to tell them that's not a public area until we're up.
Other than that. I think I would feel really stressed about safety with the 25' and not enjoy that aspect of it. It's not that our car can't pull it. But when it comes to unforeseen emergency maneuvers, stopping, or downhill grades, that's when you need to consider the weight/size of what you're towing more seriously. I like the "compact" size of the 23D, it's easy to maneuver in the city (I've towed it) and does seem easier to fit in many campgrounds.
Another thing to consider, is that some people towing with Touaregs and similar SUVs seem to be couples and they are doing special things to reduce tongue weight such as removing spare tires, gas tanks, and packing light in the car. With three kids, I feel you just can't do that. You're gonna have the three kids in the car and all their gear even if you pack light which we try to. Last trip, we had two adults bike behind the TT and little kids bikes in the back of the LR3. On another trip, we put two light kid kayaks inside the TT. It's too difficult to reduce weight with a whole family which is another con on the 25' and longer TTs in my opinion.
We did some primitive camping for six days with the kids and didn't run out of water even though I washed way too many dishes. It was very positive.
Well, hope that helps. There doesn't seem to be too many votes for going smaller so I thought I'd represent.