It works well for a family of four but by the time you get to a family of five seating arrangements get tough. My daughter has a 4 year old, a two year old, and a newborn. They fit marginally in her 2004 Chevy Classic (52 inch rear hip room, same as the hatchback Prius). Infant seats are wider than booster seats, so if the children are too close together it will require an infant seat and two convertibles, which may not fit into anything without three rows of seats (she bought a 2002 Sienna last month). Booster seats are considerably smaller but can't be used until the child reaches a particular size and weight - laws vary from state to state.
Otherwise it is an excellent choice. The Prius has proven to be a supremely reliable and economical car. For a growing family I recommend going with a used Prius. I bought mine with 103K miles several years ago and have put more than 40K miles on it with no more than the scheduled maintenance, a set of tires, several windshield wipers, and one windshield (Arizona - the land of flying rocks). Mine is a first generation 2002 Prius and is less efficient and less reliable than the hatchback models, but it has been one of the best cars I've ever owned. My wife's 2002 is the other one. Nothing else has come close.
