First time in Switzerland.

Weather might be your only pitfall. If its early October, your chances are better. If it's late October, things can get iffy. But I like that you've budgeted enough days so that if you lose one to bad weather, your entire trip to the region won't be a waste.

Prioritize which is more important, the Jungfrau or Schilthorn, and ascend to the preferred peak the first chance that weather allows. Also, the cable car to Piz Gloria sometimes closes because of high wind. So, keep it flexible, and prepare to change plans if the weather doesn't cooperate.

I must admit I attacked this one like a mathematical puzzle. There are some complicated logistics here, but I'll give you my conclusions:
1. Get four 4-day 2nd class Swiss Passes at 245 chf each. That will cover all of your travel from entering Switzerland to leaving. EXCEPT, round trip from Muerren to the Schilthorn and round trip from Klein Scheidegg to the Jungfraujoch, BUT you will get a 50% discount on these 2 trips.
2. Get a Swiss Family Card (no charge) and the 6 year-old travels free, except the previously mentioned round trips.
3. You will need to pay for the journey from Milan to the Swiss border. About 26 chf per person.
4. Buy five tickets from the French Railway from Basel to Paris leaving sometime after noon. Exactly 3 months before your departure date, they will go on sale and there will be some tickets available at 25 euro each. The journey time is 3 hours 11 minutes. You can travel from Muerren to Basel that morning on your Swiss pass and will have to change trains there. There are connections every 30 minutes from Muerren to Basel and its just less than 3 hours travel time.
I would encourage you to contact the Swiss Pass office via the website contact function.
http://www.sbb.ch/en/meta/contact.html
The French Rail site is: http://en.voyages-sncf.com/en/?DISTRIBUTED_COUNTRY=GB

Adding on to Sam's good suggestions, I believe that the Swiss Family Card will cover the 6-year old fully free to and from the tops of the Jungfrau and the Schilthorn as long as the child is in the company of at least one parent with a valid ticket. This valid ticket does not have to be any kind of pass or card - simply a valid ticket. Also, in my experience, the Italian ticket system cannot see Lauterbrunnen, Muerren, Gimmelwald and anything inside the Lauterbrunnen Valley. Again, with Sam's suggestions, buy your tickets from the Italians to the Swiss border (most likely Brig) and then buy your Swiss Transfer passes with the free Swiss Family Card.

Thank you so much you all for such informative guidance.
A few things that concern me.... are there too many changes in the routes of our choice?
Like, going from milan to Muerren... how many times will I need to change transport and where? and also while going on to Paris?

There is no way around the fact that you will need to change trains. From Milan, you can ride on an EC train all the way to Spiez. You will then need to change to a train to Interlaken Ost. There you need to change to a train to Lauterbrunnen. The train to Lauterbrunnen is a narrower gauge than the main line trains, so the change here is unavoidable. At Lauterbrunnen you have 2 ways to get to Muerren, one way is a bus further up the valley, then a cable car up to Muerren. The other way is to take a cable car from Lauterbrunnen station a short way up the mountain and change to another small train that takes you to Muerren.
Leaving, you will take the same route backwards to Interlaken Ost. From there it would be a direct train to Basel. There you would change to a fast TGV train direct to Paris.
I will wait for Chris to chime in with hotel suggestions in Muerren. He lives there, at least some of the time.

There won't be too many changes, only the ones that are needed.

From Milan the most direct and fastest route - albeit with some tunnel - is Milano Centrale to Spiez (perhaps with an easy change in Brig on the way), then change at the end of the line at Interlaken Ost (not Interlaken West, that's no good), down into the tunnel and over to the train up to Lauterbrunnen (be sure to sit in the half of the train going to Lauterbrunnen, not the half marked to go to Grindelwald or you will be in completely the wrong valley after the train divides). Lauterbrunnen is the end of the line. Cross under the road and take the cable car up (be sure to look backwards for a most impressive view) to the top of the cable car where you go just around the corner just a very few metres to the waiting train which takes you on a scenic little ride along the edge of the cliff to Muerren at the end of the line.

It is all well timed and smooth with typical Swiss planning.

Check out Chris's twitter feed. Note that it snowed last year on October 11 (it melted later).
https://twitter.com/Murrenlover

As Sam says, the transportation changes are unavoidable. I use the term "transportation" as all of the changes will not be trains. A gondola or two and possibly a bus are involved. After you begin seeing the beauty and splendor of the area, you won't mind the changes a bit. For example, from Interlaken Ost, you ride the local Jungfraubahn train into Lauterbrunnen. To get to Muerren, you walk about 300' from the train station across the street to the gondola station. Up you go to Grutshalp. At Grutshalp, you can either walk the remaining distance into Muerren or take the cog train that's waiting for you. It's all an adventure.

Another example. Now, we're off to the Jungfraujoch. From Muerren, it's cog train to Grutshalp, gondola down to Lauterbrunnen, cog train up to Kleine-Scheidegg and a final train change onto the cog train that takes you to the Jungfraujoch. Again, it's all a pleasant adventure. Just take lots of pictures. Here's a link to a picture of the cog train from Lauterbrunnen to Kleine-Scheidegg. Note the 3rd cog rail in the middle of the tracks which is why it is often called a cog train.

http://gyazo.com/2ef15c9f5c9cb7c5d5c8db0186ab5376