If you're thinking of staying in a hostel dorm with other fellow travellers I would suggest thinking about your sanity. I've done the hostel thing and it is a great way to meet other travellers but when you're on a limited amount of time, not getting a full night's rest left me cranky and irritable the next day. Earplugs can only do so much and having the light flicked on at 3am for some traveller stumbling in isn't pleasant. Spending the extra 10 euros (on top of what you'd pay for a dorm) is worth it to stay in a budget hotel or even the private room in a hostel.
I wish I could help you on the train situation but I only took the trains in Italy when I lived there for a semester. The one thing I can tell you is to invest in an inflatable neck pillow. That will save your neck from being sore - otherwise you end up doing the head jerk when you nod off to sleep.
Try to get the Lonely Planet Europe on a shoestring guidebook. It gives you a condensed version of all the wonderful things all tourists should see when they're in a particular country on limited time and budget. If you're a book lover you won't like the following suggestion (some of my friends don't): When I travel, I tend to take an exacto knife/razor and cut out the chapters/pages of the guide book that I won't be using. It seems silly but I'd rather not lug around all that weight in my shoulder bag (because you'll also be carrying your camera, water, snacks, etc). When I go home, I put back the chapters again. Some would say, I wouldn't be able to go to certain places spontaneously... but I only cut out the places I definitely know I'm not visiting.
Rome is perhaps a place where you don't need to book a hotel room before hand. You can go to the hotel reservation counter in Roma Termini (the main train station) and they'll find you a room based on location and budget.
I think its way more fun to go open-jaw (fly into one city and out of another) rather than wasting time backtracking.
Also for your peace of mind, buy little mini travel combination locks that you can use to lock your backpack zippers together. It doesn't stop a determined thief but it stops someone with sticky fingers. Also, bring the chain and lock you would use on a train in India. It would be great for using on a long-haul train ride in Europe plus chaining your stuff to a bed if you do have to stay at a hostel with no lockers.
By all means keep Switzerland on. When my boyfriend did Europe on a rail pass he spent a lot of time in Switzerland and loved the mountain scenery there. Keep in mind with your tentative itinerary that you should be budgeting at least a half a day travelling time between cities in the same country. So if you say that you have two days... well you really only have 1 1/2 when you factor in travel time and getting to/from your hostel/hotel.
If you need advice on packing, I found a link on indiamike.com: http://www.mapability.com/travel/pack.html
This guy has a great list of what to pack.
If you want to list out your proposed travel route I might be able to help you more with your itinerary. Keep in mind that if you really do want to see these places, odds are that you'll end up coming back sometime in the future. I didn't think I was going back to Europe for awhile after going to school there in 2003, but I ended up going back two more times since then. You can also e-mail me via my travelblog link too.
Hope this helps.
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