Hi Azz,
exchange rate is around 2.5 to the £ - you can check the fluctuation on the internet - search for currency rates, you can also find a currency conversion which is useful to have on you. I think money is a personal thing and regular visitors to Turkey know how they will spend and the cost of things - new visitors have to plan for everything. Some people take all cash - I wouldn't walk round with a lot of cash on me anywhere let alone on holiday.
You can use sterling, euros, turkish lira in most places -even the small shops and bars/restaurants have started exchangng traveller's cheques so you can't really go wrong. Exchange rate will change daily so I would take some lira with you to start you off - then you can choose when to change and get the best rate.
My son works in a bank so I take my advice from him (he's been to Turkey several times too). I take £50 worth of Turkish lira, then traveller's cheques (in £50's) and sterling £10 or £20 notes. I take my bank card too. Lira is to start me off and to get some basics at the stop on the
transfer - might be useful for you with little ones if you're travelling at night - though be aware prices are higher than in resort.
As more places are exchanging travellers cheques, there's more competition so more doing commission free. Sterling is useful in the market, you'll hear "4 for a tenner" though you can use euros/lira there too. I've used cashpoints several times - there's a clump of them in the centre - on the road down to the beach opposite Friends.
As I said I think it's a personal choice but hope this helps.