My children were born on a Military Installation - US Army Hospital Berlin and I still had to get a FS-240 so I could get a Passport for them, don’t remember what I needed for my Army benefits. As far as the dual citizenship I never gave it much thought, I know my children never thought about it, which Cruz also did, until he realized it might become an issue.
Then by my experience your kids are unusual or maybe it is a generational thing. My acquaintances all seemed very aware and quite happy about having dual citizenship with Canada. Many said if they were drafted they would go to Canada with no fear of not being accepted there or being able to get a job. But there are other advantages as well. If you buy a home in Canada as a US citizen my understanding is the Canadian government will withhold 50% of the sales price if you decide to sell it to cover the exorbitant taxes that they charge to foreign investors.
In my opinion Senator Cruz has the best conservative credentials of all the candidates. But this problem is only going to get worse in my opinion the longer he lets it linger. It is going to drag on his campaign not so much because of the actual legal points but because of the perception that it could disqualify him down the road. Many people are not going to want to risk their vote on someone who could have it all stolen from him sometime before the general election or even after the general election.