...Back to the pension loan... wouldn't it be a bit "better" to not be accruing all of the interest and fees...

On paper, yes. In real life, no. They have 7 years until retirement. If they can cut their spending and increase their payments so that their cc debt drops by $500/month, thay will go into retirement not only debt-free but also with better money-management skills.

The big question mark I see in your plan is their mortgage. Normally retirees use the equity in their old house to pay for a less expensive house and get some cash in the process. The extra cash is for an emergency fund, or for long-term health care insurance, for example. Your parents, on the other hand, are planning to buy a retirement home that is as expensive, or more expensive, than their current house. This raises questions:
1. How much equity do they have in their current house? If they are at the end of a 30-year mortgage, they might owe only $5k on their $200k house, and that would be good. If they recently did a cash-out refinance and spent the cash (maybe for your college?), then that's a different story.
2. Assuming they'll get a mortgage on their retirement home, how will they make the payments? From their pension income? Now we're back to the pension, which other posters have addressed.

I think it's fantastic that your parents are taking the time to take stock of their situation and plan for the future, and that you're taking the time to help. One thing I would suggest you add to your homework is to find them a fee-only financial advisor. One good starting point on that research is www.napfa.org.

DH & I are about your parents' age, and with 23-yr-old DD's college paid for, 17-yr-old DS's college coming up, retirement on the horizon, and elderly parents who might need help, we are facing some of the same issues your parents are facing. It can get complicated. Even though your financial knowledge is far superior to that of a lot of people your age, and even better than your parents', it's not quite enough to tackle all the angles. That's why I suggest they see an independent financial advisor.

...My dad got into the habit of paying off one debt by incurring another, perhaps we could call that the melting of the snowball. My mom never uses a credit card...She's been the shining star of LBYM all her life thanks to the way HER parents raised her. In the past couple of months she has spoken out against my dad's spending like she never has before...

Another reason you should set them up with someone else who can guide them, rather than providing all the guidance yourself. I realize they have a shared goal now, but the situation is not one of just numbers on paper. It's about different money management styles within a marriage, spouses' responsibilities to each other, parents' responsibilities to children, and all the historical and emotional baggage that each individual brings to the table.

Good luck.