I've been working from home for close to ten years, and one thing to note is that the challenges are exponentially increased when children enter the picture. When those children become teens, the challenges can be epic. Nothing like a flame-out between two daughters in the kitchen next to your office during a conference call! Throw in a couple of pets, just in case the stress level isn't crippling yet. Fortunately I'm a night-owl, and don't have to attend too many meetings. In terms of producing what I need to produce I can often shift work into the quieter evening and early morning hours. In the end I would still much rather work this way. All of the interruptions of family life still prove somehow less disruptive than the endless "networking" and powerpoint-strewn meetings I used to be dragged into when I worked in an office.
I am in similar situation. Routine can help in some cases. When you have a routine your wife and kids know when you will leave the room and when you will go back in (or the cave as my wife calls it :D). Sometimes it can be hard to take breaks at the same time everyday, especially when you are trying to figure out a problem you believe you are very close to solving. However, sometimes that break is all you need to fix that pesky bug!
Headphones are also helpful, though like you I am a night owl as well. The only problem with that is that it can lead to irregular sleep, a subject a would like to read more about from a programmer who works at home with a family.
