4 nights in southern bavaria ?

msivala. Don't underestimate the time it takes to move from one location to another. Its not just the train/drive time, its the getting up, checking out, loading, stopping for lunch, looking for parking, checking in at new hotel, etc. So that each time you move to another location , it eats up at least half a day or more. So two nights equals only one day of sightseeing - not much time for all those activities you are proposing. Getting to and from the castles takes hours of time from wherever you are, for example. One night anywhere is just time for dinner and sleeping. If it were me, with family, and only four nights, I would pick one of those locations and see what's feasible for day trips from there when you get there.

Where is your start point? Car or public transportation? Time of year (swimming)? What do you think of for accommodations?

We plan to take the train from Lucerne to Konstanz on day 1 and drive from there to Fussen(mid july ). We have 4 nights in the area before going to Munich for our international flight.
My husband really wants to see neuschwanstein castle (we dont plan to go in). Ideally I would like us to base somewhere for 4 nights and day trip from there but salzburg/Berchetesgaden seems like too long a drive on day 1 which is why I am planning to split the nights between Fussen and Salzburg area.
I havent booked the accomodations yet. We would love to find a farm stay or other family friendly place (for under $150 a night).
I will appreciate any suggestions on accomodations as well as fun stuff to experience the bavarian culture with kids.

Check out Bavaria Ben's site - www.bensbauernhof.com good info on farm stays, including some near Fussen.

Go inside Neuschwanstein.

Maybe someplace around Chiemsee or Schönau am Königsee? At Schönau am Königsee there is a Schwimmbad and you can swim in the Königsee, but there is no beach per say. http://www.koenigssee.com/familienurlaub/freibad-schornbad.htm
We stayed here years ago, Bauernhof Unterartenreitlehen. It has since been updated to four apartments only. It is within walking distance of restaurants and the Königsee, Jennerbahn etc. http://www.unterartenreit.de/ This place has a nice beer garden and we always go there when in Schönau: Grünsteinstüberl www.gruensteinstueberl.de
You would have to plan the drive time in and out to the sights you want to see.

Thank you. I will check out the links.
It appears that there are 4 salt mines in the area - Altaussee,Hallstatt, Hallein and Berchtesgaden
Anyone advice on which one would be the most fun for kids ? Thanks

I'd do 2 and 2, especially with kids. Lots of castles and several other fun things (hikes, lifts, summer luge courses) around Reutte.

The Tegelberg alpine slide area also has a really awesome little playground, with a mini zip line, rock climbing thing, some kind of game, regular playground stuff. Looked like sometimes they have trampolines and stuff too, but not out when we went. We were there as part of a day tour from Munich, could have spent longer at that playground (I have boys who were 9 and 11).

A couple pics here of it...
http://www.travelpod.com/travel-blog-entries/gatorfreud/1/1401982831/tpod.html

Thank you for all the suggestions. Please keep them coming.
Kim, Really nice pics. You have a beautiful family. Thank you for sharing.

Did the Berchtesgaden Salt Mine tour years ago with my kids who were 4 and 7 at the time and we had a great time. This was part of the Army trips out of then US Hotels in Berchtesgaden (long since returned to Germany, some since demolished with one a 5 star hotel on the site). I could recommend it, Glück Auf!... Salzbergwerk Berchtesgaden:
http://www.salzbergwerk.de/en