We are trying to find accomodations along the Rhine and near Munich for a family of 6, maybe 7 travelers. We don't want to pay for three hotel rooms, do you suggest places to look to find homes to rent or B&B's to accomodate us without breaking the bank?
Without specific places "along the Rhein and near Munich" it's difficult to suggest specific places, but I would suggest you look for what are called "Ferienwohnungen" or vacation apartments. Ferienwohnungen usually have multiple bedrooms, a sleepable living room, a kitchen nook, and an eating area. They often rent by the week and are a lot less than rooms. To find them, use town websites, www.town.de and look for Ferienwohnungen under "Unterkünfte" or "Übernachten".
Ferienwohnungen are indeed the way to go. We enjoyed this one on the Rhine in St. Goar: http://www.mittelrhein-ferienwohnung.de/st-goar/germany/rhine-river-view/index.html It's quite close to the river docks, the train station, and the town center and will handily accommodate 4. You might be able to locate some larger places, but as a rule, few apartments accommodate 6-7 people; you'll likely need a second room or apartment wherever you rent. There are other apartments in this same building, so for about 100 Euros per night total, you'd all be be set. Owner Walter Huppertz is a helpful and friendly man who speaks good English, by the way, and will meet you at the station if traveling by train.
We absolutely loved Burg Stahleck. It's a castle turned hostel above Bacharach. We were traveling as a family of five. They gave us the Rhineblick (blick meaning view) room. It sleeps ten and has it's own bathroom. We had the room to ourselves. As hostels go you won't find many better than this, well run, clean and quiet. The only down side is it's very popular and I wouldn't expect to stay without reservations any time of year. The earlier you contact them, the better your chance they won't be sold out.
You could also try www.interchalet.com for reasonably priced self catering accomodation. Last time I used this company the price included free train and bus travel within the area which made it an even better deal.
If you've got kids, a farmhouse stay can be a great experience. Don't know about along the Rhine, but there's tons in Bavaria. I've used http://english.bauernhof-urlaub.com/. Most farmhouse stays include apartments.