Whirlwind itinerary — please advise

"...they are great travelers (we have done lots of road trips in the US)"

So they are accustomed to riding around in the back seat for long stretches. I think this is not at all necessary or desirable for seeing Germany - why duplicate the car trips you do back home all the time? - and that your whirlwind schedule doesn't really help you see Germany.

I also question the wisdom of an overnight train ride to Florence; one or more of you may arrive in need of more sleep than you got for Day 1 in Florence. And in the dark, you will miss out on the alpine scenery altogether. Look for cheap flights instead.

Destinations: You are emphasizing small-town Germany; I think that's a wonderful way to see Germany. Berlin, Munich, Cologne, Hamburg etc. have their charms but I think you'll see much more of the "Old World" in Germany's smaller towns. The problem I see is the smaller towns you've chosen. Some of your choices (like the Rhine Valley) are quite good and good for families as well. Some of them are less so IMHO, and are so densely populated with tourists and trinkets as to make you think you are in some sort of amusement park (think Rothenburg and N'stein.) There's nothing wrong with most of the Romantic Road towns, but this 2-lane road gets over-packed in summer with all the other international tourists who have read the same guidebook advice you have read. You may or may not be aware that N'stein isn't a true "castle" at all but instead an unfinished palatial residence - with nifty-looking but totally fake defensive elements around its exterior - built just before the dawn of the 20th century - the same time Chicago got its first high-rise buildings. (The overpriced and very brief 30-minute tour doesn't seem to deter the tourists, for whatever reason.)

The Middle Rhine on the other hand, with its sister-river the Moselle, though not without tourists, is jam-packed with real medieval castles Some you can tour, some offer accommodations.

Burg Eltz (near Moselkern)
Marksburg (Braubach)
Rheinfels (St. Goar)
Bernkastel (eye-popping buildings on the Mosel River)
Bacharach's Stahleck Castle (family rooms, reserve well in advance.)

It's also packed with old-world towns like Bacharach - Oberwesel - Braubach

The amusement park in Klotten is real fun for kids and families. Do the birds of prey show there. Try the summer bobsled ride (Loreleybob) in the Middle Rhine Valley; scenic river cruises? A waterpark? The old-world town of (Cochem has a nice one for all ages - the Moselbad.)

So I suggest 3-4 nights in this region. Stay put for a while - take some short jaunts. Then move on to one other spot in the Alps. Maybe you stop over in Würzburg or Rothenburg for a night before heading to Berchtesgaden/Salzburg (where 4 nights would be well spent.) There's not time to see everything.

All fair points, and well taken. For the Rhine area, would you recommend a certain town as a home base from which to explore the region for a couple days? We wouldn’t want a car while there. I can see doing Rothenburg as a pass-through in an afternoon just to see it en route to elsewhere, with longer stays in the Rhine area and the Alps. So many things to see and not enough time in a lifetime!

A lovely town on the Rhine would be Eltville. No souvenir stores, but lots of half timbered buildings, a great river promenade with no trains running along it, good food, lots of wine, dry moat filled with roses and flowers, castle tower, ancient church, and easy access to the trains running up the right side of the Rhine as well as to Wiesbaden and Mainz.

Picking up a car in Germany and dropping it in Austria may incur a significant surcharge. "Significant" as in hundreds of euros. Check that out (perhaps on the AutoEurope website) sooner rather than later, so you can adjust your plans if necessary.

I agree that night trains are often not very restful, though the comfort level varies with the condition of the track they are using. The particular train you are contemplating (I assume) makes stops at 10:54 PM, 12:55 AM, 1:35 AM, and 5:22 AM. Stops are accompanied by pronounced deceleration, station noise, and then acceleration. I'd be lucky to get a very few hours of extremely fitful sleep on that train. It arrives in Salzburg at 6:12 AM, where you'll probably have a lot of time to kill before you can do anything other than eat breakfast and walk around outdoors. How will that work out if some of you have slept very, very badly?

If the night train is one of those experiences you just have to have, keep in mind that the following day may be quite rough for at least some of you. I would not pre-book any expensive activities for that day.

This is all good food for thought, thank you so much to everyone for taking the time to give such thoughtful replies.

I’m not overly worried about sleeping on the night train, but I appreciate the concerns and will give it more thought. We would get a couchette for four, and I’ve taken the night train from Budapest to Prague in the past so I understand what it’s like. Great tip about returning the car in another country, I hadn’t considered that!

"For the Rhine area, would you recommend a certain town as a home base from which to explore the region for a couple days? We wouldn’t want a car while there."

There are many nice towns but for train travelers, St. Goar, in the middle of the scenic area - in the Rhine's most scenic spot of all - and no more than around 10 minutes from Oberwesel, Bacharach and Boppard, is very well located for train outings on the Rhine. It's a small town - almost every hotel and apartment in town is no more than a few blocks from the station. Unlike most towns, St. Goar has a ferry crossing from the center of town to the town across the river, where you can actually catch a train to visit towns on the east bank like Braubach and Rüdesheim (southern end of the scenic part) and Eltville (which lies further beyond Rüdesheim near Wiesbaden.) (Note that the ferry isn't only for foot passengers but cars as well.) Map of Rhine towns:
http://www.mittelrhein-wein.com/Bilder/rheinlauf-gross.jpg

It might be premature to decide for sure on the car or train. You may need one or the other here or there... For example - what if you decide to stay in Bacharach's castle hostel, high on the cliffside above town? You might in fact want a car for that as there's no bus or train service to get you up there. Families generally have fewer choices and a harder time finding rooms because rooms/apartments for 4 are much scarcer than places for 2 - you might need to book somewhere that's not so convenient to the station. I would wait until the details of your itinerary are worked out to decide about transportation. (Which, I confess, is not at all what we do when we travel. For us, trains are a given - the only acceptable option. We enjoy train travel in Germany so much more than car travel that we just plan hotels and sights accordingly. If the two of us had either your original itinerary or the one I suggested, we'd do it by train. Our first family trip, with one 9-year-old, was a train-only trip. It was great.)