Hi Mark. I've done more than my fair share of hillwalking in southern Bavaria and would recommend Oberstdorf, Berchtesgaden and Garmisch, in that order.
Oberstdorf has the lowest hills, ranging from 1,800m to about 2,600m, but I find that it has by far the widest choice, depending on what you want to do - everything from simple up and down hills, to ridge walks, long/high day walks, various levels of klettersteigs and hut tours. It's about 2 hours by train from Munich. Garmisch has some good hills, but not as many as Oberstdorf, although it has the Zugspitze (Germany's highest mountain), which might be appealing, if hell of a crowded with day trippers from the train. I find Berchtesgaden much more attractive than Garmisch and it has some good walks behind the Obersalzberg, around Koenigsee and particularly up the Watzmann. Having done all three areas, it depends how long you have. If it's just a few days, then any one would do, but Oberstdorf definitely has the edge for a two week holiday.
As far as guides go, I wouldn't really bother with anything that's available in the UK, as everything I've seen tends to be very basic. The best thing is to go to www.amazon.de (your details will already be there if you use amazon.co.uk) and search there. The books and maps are cheaper than in the UK even after postage and only take a couple of weeks. I would suggest that the "Kompass" walking guidebooks and maps are worth buying, as are the "Rother" walking guides. If you use a GPS, the Bayerisches Landesvermessungsamt 1:50000 maps have UTM grids. Search under "Allgaeu" for Oberstdorf, "Werdenfelser Land" for Garmisch and "Berchtesgadener Land" for guess where.
I could go on and on, as I love walking in Bavaria, but hopefully that's given you something else to think about.