"With about 7 days, I would certainly add another location and spend at least 3 nights somewhere else. "
I completely agree with this notion.
1 or 2 day trips from Munich to the places you want to go might be OK, but with the exception of Dachau, these long journeys to Salzburg, Innsbruck, Füssen, etc. require 4 hours round trip or longer by train or driving in and out of the traffic mess that Munich often is. It's going to get old fast. You can speed up these trips slightly by using high speed (more expensive) trains for Salzburg and Innsbruck and achieve the travel times Ken identifies, but forget about using the economical, family-friendly Bayern Ticket daypass if you do.
"Castles - the "usual" favourite for Castles in that area are Neuschwanstein and Hohenschwangau, , which are located in Füssen,..."
These ARE extremely popular but they are not castles at all - they are palatial residences built in the late 19th century. Also, the castles are not in Füssen. For a visit to the castles would you'd need to add 20 minutes' travel time (in each direction) to the 2 hr train trip in each direction since you have to take a bus to the base of the castles. From Munich that's closer to 5 hours round trip than it is 4. Only once you are at the castle stop would you be able to board a horse-drawn carriage or begin the climb to N'stein. Walking time from the Ticket-Center to Neuschwanstein castle is officially about 40 minutes: Approach to N'stein
If you want castles then you absolutely should base in/near Salzburg or Berchtesgaden. You can add the options in the link below to Paul's list for that area; my guess is that the falconry show at Hohenwerfen (site of Clint Eastwood's "Where Eagles Dare") would be enjoyable both for kids and parents:
Castles, fortresses and palaces in/near Salzburg
Photo of Paul's suggested Königssee just outside Berchtesgaden