First trip to Europe

I don't think your plan to see what you can in London is realistic. You say you have 5 hours, but you haven't made any allowance for getting to and from the city. Also, I'll think you'll need to clear customs in London. So instead of 5 hours, you'll have more like 2. I wouldn't chance it, but I'm pretty paranoid about plane connections. Others may be able to give you better guidance.

As for the rest of your itinerary, I like the first part. I don't think I would want to spend the last four days of a vacation making longish day trips from Munich. Colmar is way to far for a day trip from Munich; I'm not sure how far the Black Forest is. I don't like to do too many day trips in a row, especially by car. I would want to spend a day or two staying put and end on a more relaxing note. But if these are places you really want to see and you enjoy driving, this plan might work for you.

I believe it is important to be blunt;

1) You absolutely do not have time to see London on a 7-hour layover. You should have arranged for either a shorter layover or a longer one. Now you are stuck in their airport for 7 hours. Even after clearing customs, it is a minimum of an hour to get into the city. Then the same amount of time and hassle doing it in reverse to get back. You do NOT want to mess with catching a connecting flight! Even if everything went perfectly and all the hassle didn't bother you or your parents, you would have, at most 2 hours "free" in London. What would you do, considering you cannot magically teleport yourself into your chosen tourist site? Just don't. Changing your flight would be easier.

2) Rome and Venice are fine, though I would do 5 in Rome and 2 in Venice and do a day trip to Pompeii from Rome, but that's me.

3) You are using Munich as a base and giving yourself NO time to see Munich! Those are all lengthy all-day consuming day trips (Rule #1 for driving in Europe; unless you are on a major motorway - which is unappealing - you will average 30-35 mph on wide roads and 25 mph on narrow roads). You do not want to do long day trips by car. Train is better, when possible. If you can't drive there in 90 minutes (45 miles on regular roads, 80 miles on a motorway) I wouldn't drive a day trip there. Salzburg is worth at least a day and night by itself and is better done by train. There are bus tours from Munich that do the two castles. Colmar and the Black Forest areas are way too far away from Munich. Stay in Munich and actually see the city you are staying in instead. Either Roth. or Nurn. are doable, but not on the same day.

You absolutely don't have enough time to do anything in London on your layover. Yes, you need to be back 2 hours before your ongoing flight, and you have an hour to get into town and an hour to get back (minimum). Add time to get through immigration and customs before leaving the airport, and you're down to between two and three hours IF your first flight gets in on time. You might take a quick trip to Windsor because it's nearby, but that's about all you could do.

I'll second Windsor. Lovely town, castle and could at least be done quickly.

Skip the Black Forest and Colmar and stay in Munich. As well for Nurnberg, Munich will easily fill two full days on it's own. It will be chilly and probably rainy in Germany, fairly nice in Italy, but still cold at night.

You will have a great time, but don't try to squeeze too much into too short a time, otherwise you will feel like you are going, going, going, every day, and not able to actually enjoy yourselves.

I would re-evaluate your need for a rental car in Germany. As others have said, the Black Forest and Colmar are too far distant for a daytrip. It is possible to briefly see Salzburg from Munich, but the city requires more time than you have allotted. As others have noted, you can easily take a bus tour to the castles from Munich. Both Rothenburg and Nurnberg are easy to visit by train, but not in the same day. Finally, Munich is one of the best cities in Europe for walking and biking, and one of the worst for driving. Most of the sites of interest to tourists are within walking distance of each other, parking is scarce and expensive, and navigating by auto is extremely confusing, even with a GPS.

I have made the drive from the Black Forest to Munich. There is no way to do it as a day trip. We did do a day trip to Colmar - from the Black Forest! I think you should just skip that area and save it for another trip. A day trip to Salzburg from Munich is totally doable. We had a car, but opted to go by train. We stayed in Munich for 3 nights. We parked our car when we arrived and didn't get back into it until we left. Munich is not as hard to drive in as say Paris is, but not recommended if you don't have to. I would also be worried about weather that time of year if you are driving. If you have to have a car you might want to stay out of town instead of the city center, especially since you don't seem to be interested in Munich.

I know on your first trip you want to try to see as much as possible, but don't make the mistake of trying to see TOO much. Take some time to just enjoy being there! Remember - you can always go back.

About the castles:

Not sure they're really worth a whole day which could probably be spent elsewhere more profitably.

Neuschwanstein has a really, really miserable hill leading up to it. Long and steep (or at least the wrong slope or something). I hike a lot, but was sucking air badly when I got to the top. My wife (also rather fit) has been there independently with her mom and says the same thing. It's a standing joke for being miserable in our house. Your mom and dad might not be up to it.

Here's an alternative for your Heathrow layover--tour Windsor Castle. You'll be coming into Terminal 5, on the Windsor side of Heathrow anyway, and can take bus 71 or 77. Both stop right in front of Windsor Castle. They leave every half hour and take about 45 minutes to get to the castle, passing through some lovely English countryside on the way. You can leave your luggage at Terminal 5 before you go. Just be sure you give yourself plenty of time to get through security again on the way back.

I agree that you can shave a day off your Venice trip, since there is so much you want to do in Germany. I wouldn't stay in Munich as a base, though. If you really want to see as many things as you do, you're better off relocating each night. Or better yet, cutting some things off the itinerary so you can relax a bit and soak up the European ambience that you came for.