As someone else said, it depends. From strictly a cost standpoint, you may be better offsite... BUT you said it's $1200 for 10 days? Then, you have to buy food on top of that. Even if you are really frugal, you'll spend at least $200-300 on food for 6 people, right? That's $1400-1500 minimum for room/food. On top of that, you have to pay to park (assuming no APs), and gas money for getting around. That's another $150 for parking and--to make it easy--let's say $50 for gas. So, you're up to $1600-1700.
If you got two value rooms with free dining, how much are they? $80/night? So, 10 days/9 nights would cost you 9 * 80 * 2 = $1440 (+tips when necessary). That covers beds, parking, transportation onsite, and food.
Of course, IT DEPENDS on what you want to do and how you roll. We are in our room long enough to sleep and that's it. So, a value room is okay. If you plan to hang out in your room/house, you probably want something bigger. Of course, I don't see much point in going all the way to Florida just to hang out in a room.
I think when you fly to Florida, it's even more lopsided on Disney's side. Then, you have to add in the cost of a rental car.
On the other hand, if you don't get free dining, you may be able to save enough making your own food or eating offsite to offset things like parking and gas, BUT there is also the inconvenience of leaving the parks, cooking your own food, cleaning it up, etc.. When I'm on vacation, I'd rather let someone else wash the dishes.
Also, if you have a large enough group, the Disney transportation allows for part of the group to go back to the room or somewhere else without really affecting the rest of the group.
I am a penny pincher, but I am a big fan of being onsite. Of course, I'm also a big fan of free dining--the last 2 times we've gone. In fact, I don't know if we'd go WITHOUT free dining (once again, that's a calculation that each set of travelers has to make when comparing against other possible discounts, but it works out well for our family).