What is the exterior siding/cladding? Any rot in the frames?

Is budget a concern?

Siding is vinyl.

I think exterior window cladding is aluminum?

No rot in the frames that I know of.

Budget is definitely a factor, but we're willing to spend a bit more if it will pay off in the long run in terms of energy savings, resale value, etc.

In that case, an insert will be the more budget friend as well as water management appropriate application. A full tear out, without pulling the siding, is less correct in this case vs. an insert. The insert, depending on the window, will be consistent with your current area of visible glass. If you go with a bulky window, you will loose some glass.

Based on climate, I would definitely be looking at triple pane and something with a U-Factor of 0.20 and below.

Thank you for your recommendation.

I forgot to mention one pair of the windows is within a brick exterior which covers the central part of the front exterior.

I always thought inserts were less effective in terms of efficiency gain, since a complete replacement allows for modern insulation and sealing techniques. Is that not correct?

Do you have specific window model(s) you recommend that meet the triple pane and 0.20 U-factor criteria?

A well installed insert will be as efficient as a full tear out in your case. You have a more modern wood window. There aren't weight pockets and other things to get to here. The narrow profile vinyl windows out there (i.e. your concerns about glass loss) will be Sunrise, Soft-Lite, and Okna. Those are the brands that I am most familiar with.

Here are some pictures of the condition of the window interiors. It looks like there's some water damage on the window sills from condensation and frost build up on the windows in the winter. Is this salvageable with doing insert installation, or would you recommend full replacement? The windows on the lower level don't experience the same condensation problems.

Salvageable...yes. Will need sanding and stain/paint, but should be fine.

Thanks! One last major detail that I was reminded of 😬...

A few years ago, the spring after we moved in, we found water dripping inside from the top of one of the upper level bedroom windows. It wasn't raining, but we had snow on the roof. In the attached picture, I circled where the water was dripping from - the top of the window frame. It dripped through the window blinds attachment and onto the blinds across the entire top. This was a one-time occurrence, and it hasn't happened again (almost 4 years later). There's also a crack in the drywall on the left below this window that's less that 1/8 inch. It has also been there a few years and hasn't changed. I've also included a photo of the exterior of the window for reference.

So now I have a couple new questions...

Given what I described, what could have caused this water entry?

Would it be wise to do full replacement with this window? If so, would you be able to tell the difference if we did inserts for the others to save money? 

TIA for your insights!

For some reason my pictures didn't upload with that last post.