We are looking to spend 6-8 weeks during summer 2014 exploring parts of South America. Our kids will be 14, 11, 8, and 4. We definitely want to spend time in Peru (Lima, Islas Ballestas, Huacachina, Cusco, Machu Picchu, for sure), and Ecuador. Any other must sees or must avoids? Tips?

Limit your time in Lima and think about adding Arequepa to your itinerary. You can easily spend lot´s of time in Cusco and the sacred valley incl Machu Picchu.
I now people that have spend time in the north as well and raved about it, still many fantastic sights but less tourist. Also consider a trip to the Amazon basin.
Great amount of time you have allocated your trip. I´m sure you´ll all enjoy Peru, it was one of two favorite countries on our family round the world trip back in 2009/2010 (kids aged 5 and 8)

We spent a month each in Argentina, Ecuador and Boliva last summer during our RTW trip with our 10 & 14 yr olds. Ecuador has beaches, mountains, the Amazon rain forest and quaint colonial cities. You can learn spanish, live with jungle tribes and, of course, visit the Galapagos. It was our favorite country in SA. Bolivia was a close second though with an amazing four day trek across the salt flats, an experience not to be missed and a gorgeous three day hike across the Cordillia des Frailles. Argentina, in my mind was a bit boring but if you haven't been to Europe or if you are more into museums and shopping than hiking and nature, it would be interesting. Argentina is the most European and richest country - Bolivia is the most indigenous and poorest.