We are doing the main stretch that Rick recommends.....has anyone stayed in one of the "hotel" type castles? It is on my bucket list to stay in a castle....ha! no laughing. (By the way i am dragging along my two teenage boys (age 17 and 15) and a 10 yo boy too! (My husband is a willing participant!) Ha!
Hotel Schoenburg in Oberwessel is a fabulous castle and a great hotel. The restaurant is superior and roaming around the castle and grounds would be great for your kids. We were there in May and it was charming, beautiful and fun. I would certainly recommend it for a family. Look it up online and see how perfect it looks. For a castle on the Rhine, that is.
Burg Schoenburg is about the only "castle" you can stay in on the Rhein, but it is too expensive for me. The other castle is Stahleck, above Bacharach, but it is a hostel. Understand that none of the castles on the Rhein, except for the Marksburg, are authentic (and you can't stay there). They were all destroyed in around 1800 and rebuilt more modern as chateaus or hotels. There are plenty of delightful hotels in the towns of Bacharach, St. Goar, and Braubach were you can stay for far less. If you want to see a really authentic castle, albeit in ruins, visit the Rheinfels.
Have you seen this website: http://www.rhinecastles.com/ It's handy map list of lots of castle hotels. I've rented via this website on my first castle stay and everything was fine. However, after a bit of googling I was able to find direct websites for the various castles and the prices were cheaper that way...obviously cheaper because we weren't dealing with a middle man anymore. I think staying in castles is a great idea at least once. Once castle in particular that we thoroughly enjoyed was Castle Veldenstein about a 45 min train ride from Nuremburg. It was a dirt-cheap castle and there was VERY VERY little English spoken which makes for an interesting experience. The train station was just at the bottom of the hill. http://www.burghotel-veldenstein.de/Home_eng.htm
Another castle to visit, not far from Ansbach, James, on the Romantic Road, is Schloss Harburg. As far as I can tell from a quick reading, the castle has never been destroyed. Part of the castle has been remodeled with seven bedrooms and a restaurant.
We enjoyed Burg Stahleck. It's one of the best run hostels anywhere. The price is pretty much the standard hostel rate, less than 20 euros per person. It's always full though, so you need to book ahead. It's also close to Rhinefels castle ruin, which my sons loved exploring. We traveled as a family of five. They gave us the Rhineblick room, which had ten beds, a private bathroom and a wonderful view of the Rhine. I believe there is a similar castle/hostel in Koblenz, but haven't stayed there.