We (4 adults) fly into Munich on July 23. We are visiting Salzburg, Vienna and Munich, but in no set order yet. Any suggestions on train vs car or combination of both. Is it possible to rent car in one city and return to another.....perhaps take train to Salzburg then drive through austria and return it to Munich?
If your goal is to get from one city to another at the least expense, choose the train. But if you want to explore the countryside, rent a car. If you use Salzburg as a base, you can explore a lot of very beautiful country with a car rental for one-, two- or three days. You could still take the train from Salzburg to Munich, stopping at Priem for a few hours to visit Ludwig's famous castle at Chiemsee.
Your itinerary is very driveable. The roads between these cities are excellent. If you do opt for a car, I'd suggest doing both your pick up and your drop off in Munich instead of picking up in Salzburg. That way you'll avoid the "one-way drop-off" fee, which can be hefty.
If you are only visiting these cities (no rural areas), then I would suggest going with the train. Once you consider parking, gas, insurance, etc., the cost would even out (rail travel in Germany/Austria can be surprisingly inexpensive). You can rent in one city and drop in another, but there is a cost for that. In my opinion, the train would seem less of a hassle and just as time and cost efficient.
In response to similar previous questions I have seen my colleagues here suggest to rent from a German suburb of Salzburg, somewhere like Freilassing, so you don't have a country change drop charge.
I would do it by train in the order Munich, Vienna, Hallstatt, Salzburg. Austrian Rail does not have any advance purchase spezials for travel entirely in Austria, but German Rail has Europa-Spezial tickets for Munich to Vienna or back for €29 per person. So you go from Munich to Vienna on a Europa-Spezial, then come back as far as Salzburg, get off to look around (be sure to take your luggage with you), and miss the train to Munich. Or you can miss the train in Attnang-Puchheim and pay €12,40 each to go down to Hallstatt. From Hallstatt to Salzburg is €28 total, for up to five people, with an Einfach Raus ticket on regional trains. And you can take side trips to anywhere else you want to see on the way back to Salzburg for no extra.