Welcome to Fodors. You should repost your query on the Europe board - use the Change Forum option above.

Yes, there are trains. (See seat61.com) You can get a senior discount for the paradors.

We have stayed in many paradors on our last two trips to Spain. Most of them are wonderful and a very good value for the price ( see senior rates and multiple night stay rates). We have only had one negative parador experience, both the room, food and cost and it was in Santillana del Mar.
Our favorite was in Baiona, a little south of Santiago de Compostela. By the way, Sanitago de Compostela was one of my my all time favorite travel locations.Book the parador in Santiago way ahead if you wish to stay there.It was originally a hospital built by Queen Isabella and Ferdinand.
We enjoyed Northern Spain very much.DK Eyewitness has a good guide book for this region.
Why do your kids think driving in Spain is dangerous? That doesn't make any sense at all.This is Western Europe not some third world area.
We drove on well marked highways for the most part and never had problems with local roads either. We drove from Lisbon up the Portugese coast to Santiago and on to Northern Spain to most of places you list, to the Pyrenees,east over to the Mediterranean and down to Barcelona, six weeks in all, with some one week rentals along the way.We did switch rental cars from Portuagal to Spain to avoid a huge drop fee.
I find using trains a hassle for us as we get older, schlepping bags, etc.plus we like to go off the beaten path.
It is a wonderful region to explore.
Repost this on Europe Board.. Ask the Fodor's editors to do it for you.

To Thursdaysd and Happy Trvlr

Thank you guys for being so nice. Your comments and suggestions are much appreciated and to be taken into consideration within our planning. I am re-posting my mesage in the Europe Board

Thank u for sharing this thread with us and i also need this information like you.

There is a relatively small castle in Olite, near Pamplona right on your route from Zaragosa, that I think is one of the nicest to visit. They give you an English headset, you wander on your own and push the appropriate button to hear about the room,tower, etc. you're in.

I also think you might like a side-trip off the coast into the Rioja region. Vitoria is very convenient, you lose almost no time routing through there rather than the coast route between San Sebastian and Bilbao. Burgos would add a different cultural slice of Spain and isn't too far out of your way.

Another thought is to see a jumping off point for the Camino across the French border from Pamplona, St. Jean Pied de Port.

Paradors were too pricey for us. Our most expensive room (for all over Spain) was 117 euro in San Sebastian at their high-season rate. We had a great room in Zaragosa for 90 euro but two-thirds of our stops were under 65 euro, half under 50. Mostly in small hotels or hostals.

Publius: It might be more helpful if you posted that on the OPs re-posted (very) active thread on the Europe board http://www.fodors.com/community/europe/ideas-suggestions-for-a-trip-to-northern-spain.cfm

She's received tons of suggestions there and yours may get lost on this thread.

It is a great idea to visit Northern Spain, this location is very nice,lots of place to visit.