The weather can also be nice in December, so the observation hill would still be a possibility. It depends on how old your boys, it`s a rather long way from the terminals to the hill (there`s are free bus service, though) and you have to pay admission (a few Euros) for the hill. The annoying thing there is that you only overlook Terminal 1, where there is not that much traffic anymore since all Star Alliance ops moved to T2
There is an observation terrace on the roof of Terminal 2 (2 Euros), but it`s not very exciting; but still an alternative because it`s nearer.
With a Star Alliance ticket you have access to the core of T2
, where the "long halls" can also be nice: you can see most of the aircraft at the gates, it`s warm and there is free coffee available
In December there is usually a Christmas market on the plaza (near the high speed train on display) which is really nice (also for your kids, maybe)!
I would say there is a lot to do at MUC
in 3 hours, just get a map of the airport and have fun!