itinerary advice

This is all pretty unclear. It would be better if you laid out each day and your base for that day. Where are you staying on these nights?

In terms of Fussen and the Ludwig castles, many go from Munich, as this is a simple day trip.

Thank you for your comments. I edited my posting to clarify. I understand we can see the 2 castles from Munich, but dont want to add extra days there since the price of the hotel is high due to Oktoberfest. This is the reason to stay in either fussen or oberammergau before munich.

"Would appreciate any suggestions on sights or itinerary, lodging. train vs car."

(Won't comment on lodging - that involves a lot of personal preference and you have lots of time to sort that out on your own using Tripadvisor or or similar feedback that comes from a broader base of data.)

ITINERARY:

Day 7 Train to either Fussen or Oberammergau- suggestions? :Stay 2
nights Day 8 Fussen or Oberammergau: 2 castles and not sure what else.

This is a long train journey on Day 7 via Munich and then you backtrack to Munich on Day 9. But the main issue is the 2 Füssen "castles"... When you depart Luxembourg, you are a mere stone's throw from Germany's best collection of castles - real medieval castles that have stood for many centuries - in the Rhine and Mosel River valleys:

Burg Eltz (near Moselkern) - https://burg-eltz.de/en/

Marksburg (in Braubach) - https://www.marksburg.de/en/

The first "Marksburg" page above lists 10 different eye-catching German castles including Burg Eltz and two additional castles in the same area - Reichsburg in Cochem, and Rheinstein in Trechtingshausen. All of these castles offer tours.

Also popular is Rheinfels Castle (ruined castle) in St. Goar - https://www.st-goar.de/en/rheinfels-castle/

Besides castles - when you toss in the area's vineyards, wineries, and outstanding old-world towns (Bacharach, Oberwesel, Cochem, Boppard and Braubach) - and the very scenic train rides and river cruises - you really cannot go wrong here.

http://www.zughalt.de/wp-content/uploads/2011/10/DB11321.jpg
https://www.der-takt.de/typo3temp/_processed_/csm_NEU_T_Reichsburg_Cochem_3_087e83a8d1.jpg

As for the two Füssen "castles" which didn't make the list... that's probably because they are actually palaces, not castles; Neuschwanstein may look like a castle because of its fake castle exterior, but it was built just before the dawn of the 20th century.

So my best advice is to spend your 2 days in the Mosel and Rhine Valleys instead of Füssen. You will be in the German Alps later on when you visit Berchtesgaden (Eagles Nest) anyway.

Like the rest of your trips within Germany, the Rhine and Mosel Valleys are well served by train. You can do the whole bit from Luxembourg on by train if you wish (though a bus from Salzburg to Berchtesgaden might be simpler.)

We just got back from a 3 week trip in which we stayed in Salzburg for a few nights. I recommend Gasthof Holle. It is a smaller, family run hotel, and was the most similar to American accommodations of any place we stayed on our trip. There is a restaurant and bar right in the hotel, and it is located across from a cemetery, which we decided to investigate. The cemetery was beautiful and a nice place to take a walk to relax and digest your meal.

The hotel is a 30 minute drive by car to the Eagles Nest aka Kehlsteinhaus (actually in Germany), and a 6-7 minute drive to Schloss Hellbrunn (highly recommend, but if you look it up, keep the surprise from your travel companions and have a good laugh when you get there). The Sound of Music tour may stop there, because the gazebo from the movie is on the property. By bus, it was about a 10 minute ride into the heart of Salzburg. We also did a leisurely walk into downtown and it took about 45 minutes, but was worth it.

Also, it's not the renting of the car that is expensive, it's actually pretty cheap; it's the cost of gas that will get you! :)

Thank you so much for the replies. I clearly have more research to do!