At least one German reader. :-)

Most of the prepaid mobile-phone services use the network
of one of the big 4 (Vodafone, E+, T-Mobile, O2), so
service shouldn't be a problem. Why not make calls for
free to the US? http://www.peterzahlt.de/ should work
from any landline to any landline OR mobile in the US.
I've used the service; it works. You can just ignore
the ads on your computer screen (which pay for the call)
while you're talking.

Alps, Salzburg, Deutsches Museum---good choices. Munich
probably has more touristy type things than most German
cities---something to look for or avoid, depending on your
perspective.

Of course, keep in mind 220 V 60 Hz and different-style plugs.

I agree that the Bavarian local pass is the better deal, unless
you want to travel further. It is possible to rent a car; depending
on what you want to see, the train might be more convenient.

Be aware, though, that all the neoliberal folks who see privatisation
as the cure for all problems are now reaping what they have sown, namely
that there have been strikes by engine drivers and there will probably
be some more in January. (It seems they wanted to be able to hire and
fire like in private business (the train personnel used to be civil
servants) but didn't count on the engine drivers striking if they
weren't earning enough (and, while they were earning enough for a civil
servant in a secure job, they are not earning enough for someone working
in private business with fewer benefits and less job security).)