I would say that the second market you describe will more realistically be your target market.
As for what happened. My assumption is that most of the families you describe are families that would be needing to upgrade to a larger house. Most of them with two or three kids have bought houses in the past 2 to 5 years and trying to sell one of those homes right now depending on the area can be very tough and not really feasible.
Currently I would say the "economy" woes are impeding this normal progression of expanding families and many more are staying put.
I am a fairly small Realtor however I still see trends and the empty nesters moving about to be near grand children is a very common occurence. As for the younger buyers this is also a growing trend. Dallas has a large number of young buyers in a host of different family dynamics, whether it be married, single or with or without child.
The main thing to me when marketing a property is just making sure it is out there. Being that the majority of the clients are younger the internet is your best exposure. Also every empty nester I have had has also found me via the internet. If your home is marketed on the internet and is priced aggressively you should have showings.
I had a client ask me a very similar question about a certain demographic. I told them simply when marketing one home it is not cost effective to market solely to one demographic. Rather make sure the property is available for all to see and hope for the best. Also be happy that you are seeing buyers. It is a very competitive market about 300k.
Hope this helps