I think the family thing has no real way of checking who really is in your family so I think it's going to be as flexible as people think it is. Since you can't all play at the same time, it's not going to be a big deal. It's unlikely they're going to do any extensive checks because there are just so many issues involved that I doubt will make it worthwhile to MS to do. They're just calling it family, so you don't immediately read into it as a way to exploit it. For many they won't think beyond family members.
I am guessing they will all have to share the same billing information.