Hi Sascha and Kate,
The mozzies can be bad but only in certain places! We've just come back, and the only time I got bitten was at Dalaman airport on our return! Take all the necessary precautions (marmite, vitamin B, avon stuff etc - use the search facility on the top right hand of this page, to get all the information you'll need on mozzies.)
The waterpark is good for kids (of all ages, lol). Not sure about the hire car - we always use the local dolmus buses which are very cheap and reliable to use (and you can have a couple of beers without worrying!)
Enjoy your holiday, Julie