"Thoughts?"
Sure. A few anyway. First off, if you want to minimize the planning burden, a car is indeed helpful. No grand need to book within walking distance of the station wherever you stay, only to find a good place to pick up and drop off. (That said, I don't do cars anymore in Germany and would not for this itinerary - I prefer the planning hassles to the other numerous hassles that come with a car.)
"Fly into Frankfurt, drive to Rhine Valley area."
I share the previous poster's concern. It is possible to pick up a car after you reach the Rhine Valley (Mainz? Koblenz? Nearby Emmelshausen or Bad Kreuznach?)
"That's about an hour to hour and a half of driving to the town mentioned by the RS tour (Bacharach), which is not a bad place to start in the area. Do something relaxing yet outdoorsy that first day - like a river cruise - while we are acclimating to the time difference."
The cruise is a solid idea on Day 1. Drop your bags and go... However, Bacharach might not be so ideal for a river cruise that day or for exploring towns and castles the next. For a travel base I would choose another town the Rick Steves mentions instead - St. Goar - since the logistics will be easier for your outings. A cruise through the most scenic part, Bingen-St. Goar, takes about 1.5 hours one way.
Here's a map:
http://www.bingen-ruedesheimer.com/images/map/rhine-valley290.jpg
As you can see, Bacharach is in the middle of this section. If you get on in Bacharach, you can cruise only half the section (45 minutes north to St. Goar, or 90 minutes to Bingen.) Then you would either take the train or another boat back to Bacharach - and you would still be missing out on half the scenic part (and there are some fine castles and other visual treats in each direction.)
(Although it's possible to drive to Bingen to start the cruise, you would then have to return to Bingen by boat or train to fetch your car - not a great plan.)
An alternative plan from Bacharach would be to catch the train to Bingen + boat to St. Goar + train back to Bacharach. You'll cover the whole scenic part this way but it takes 2 train trips.
But the most straightforward and efficient way is to begin in either St. Goar (or Bingen.) From St. Goar, train to Bingen + boat back to St. Goar. When you get off the boat, you are "home." If you then feel up to it, you might visit Rheinfels Castle. It's right there in St. Goar. If not, you can tour it the next day.
"Sleep 2 nights in Rhine Valley area, giving us the chance to explore select castles/fortresses."
The other mighty Rhine castle besides Rheinfels is Marksburg in Braubach. It's to the north on the other side of the river. And the easy way to get there is to cross the river from St. Goar (a ferry runs all day long) to St. Goarshausen and catch a train (22 minutes) to Braubach. If you already have your car, well, the ferry takes cars too:
http://www.schiffbilder.de/1024/personen-fahrzeugfaehre-loreley-vi-zwischen-18381.jpg
RS has room rec's for St. Goar. I've stayed in separate apartments there. Here's the town TI list:
http://www.st-goar.de/612-1-host-directory.html
Some of Bacharach's inns have a problem with train noise because of the location of the tracks. Do scan the reviews carefully if you stick with Bacharach. St. Goar's situation is less problematic. IMO St. Goar has the best river scenery of any Rhine town and some good places to eat (I like Alla Fontana) and makes a nice base. The Rheinhotel St. Goar gets very good reviews. St. Goar has lovely Boppard to the north, and Oberwesel and Bacharach just to the south - so it puts you central to the most commonly visited west bank towns. Braubach (adorable old town) and Ruedesheim are on the opposite river bank; use the St. Goar ferry.