Rhine area with toddler

We've stayed in Bacharach three times, and I agree that it'd be a good place for you to stay. It's a quiet place overlooking the Rhine River with a train running through the middle of the town. The people there are very accommodating, and the place is well known for its sweet dessert wines.
Mom may need to switch trains to get to Bacharach, however it's no big deal.
You can catch the train north--through Koblenz to Cologne to switch trains that take you to Amsterdam. You really need to see the Duomo in Cologne anyway--one of the incredible sights of Europe.
For info on the region, I always go to Bavaria Ben @ http://bensbauernhof.com/accommodationsrhinemosel.html
He has accommodations listed.

For mom, there is a 13:22 train that has two changes, one in Mannheim with 10 minutes, one on Bingen with 35 minutes. As low as 19 Euro if you buy soon.
Mannheim is an easy station to change at - 10 minutes should be fine of the train is on time ( I would check to see what next train is available if late). 35 minutes in Bingen is of course very adequate since it probably is just walking from one side of the platform to the other.

There are other trains with only 1 change, but that changes at the Frankfurt airport which I think your mom would not like.

just a note: at Bacharach, the rail station is unmanned with just a ticket machine. So it can look disturbingly abandoned. Not to worry, just make sure you are squared away for your onward journey. Its a nice stop, with the main street just a short walk from the station.

Mannheim is probably an easier place to transfer for your mom. Frankfurt airport has two rail terminals and she would probably need to transfer between them. Missing a connection, however, is less of a concern, because (I think) the forward journey to Bingen from Mannheim is on a regional train. If she misses her connection, she won't have to wait long for the next option.

PS- For all the talk about "local life", Bacharach probably is the one of the most touristed towns on the Rhine. Nothing wrong with that, but expect to spend much of your time their elbow to elbow with Rick Steves fans.

"Obviously we'll take the river cruise... Interlaken->Bacharach seems like good option so were leaning that way based on train convenience..."

Cruise: The most common recommendation (and best IMO) is to start in Bingen and end in St. Goar. This south-north trip takes 1.5 hours and also takes advantage of river current (north>south takes twice as long) and covers the most scenic segment (the segment with the highest frequency of sightseeing boats as well - no coincidence.) So from Bacharach, you'd need to take the train south to Bingen, cruise north to St. Goar, then take the train back to Bacharach.

Other ideas:
Castle tour: Rheinfels Castle in St. Goar is the most common rec for families with kids - and it's good for oldsters who might have trouble getting around. It's not a guided tour so you can go at your own pace without a schedule. It's not THAT high up on the hillside from town, but with kids and Oma... Shuttle and other St. Goar info

Train ride to Rüdesheim: R'heim is on the opposite river bank to the south. It's a touristy place but can be a fun outing as there's a lot you can undertake there... vineyard tours, wine-tasting opportunities, the Asbach Uralt tour, shops, a chairlift ride, a toy museum... The Winzerexpress operates tours - never tried it myself it may or may not be right for a family like yours. To reach R'heim you'd need to take a train south to Bingen and ferry across there on the passenger ferry. There's another convenient ferry crossing in St. Goar if you happen to be there - just ferry across to St. Goarshausen and catch a train south 25 min's to R'heim. The tracks follow the riverbank the whole way and give you a new look at the river gorge.

Train to Boppard (north of St. Goar by 12 minutes, north of Bacharach by 22 minutes) Boppard is a great town - less touristy than R'heim - with plenty of half-timbered buildings and attractive restaurants and wine spots - and an extra-nice riverfront promenade (towns with these are few.) It also has a chairlift ride with a great view just a short walk from the top - Gedeonseck Terrace.

Train ride to the Mosel River to see Cochem, another great town.

Which town to stay in? The Rick Steves drum always beats for Bacharach... that will be the most common rec. you'll find here. I would recommend St. Goar. Rheinfels is right there; it's a more scenic spot, more central and convenient for train travel. Boppard is also a good choice.

Duomo in Italian = Dom in German.

Duomo in Italian = Dom in German.

So, let's use Latin domus, which is understood internationally.;) Duomo and Dom are sort of Vulgar Latin anyway.