Rule number one: Throw out that AD&D trash that is the hostile DM concept. The best games tend to be where both sides give and take, and both sides need to be at least content to get a good game going. If they hate it, then you have no game. If you hate it, you will not want to play. Be firm on things you want, but do not force them; they will more likely than not rebel if you do.
Rule number two: get the kids willing to play together so they can create this party as a group. You do not want to deal with in situ character creation since that means that there will be confusion and bitching about who does what. Also since it sounds like you're doing rookie players, you may want to stick with simpler classes and be on hand to help them out; fighter and barbarian for example is a very good opening class for first time players. The second part of your plan is spot on for this one.
Rule number three: Your third portion is about on spot for what you want. Just be warned to have improv events on hand since a party can and will break your setting over your knee. Expect at any point that they will blow through your dungeon or chump your villain. Expect them to want to go off track into a different place. Since they're newbies, a good ol' fashioned dungeon crawl is a good idea actually. It also allows you to use an AD&D thing I think is missing in most settings now: fucking traps.
Rule number four: Ask for comments, concerns, things that they think could be done better. This helps you grow as a DM since you will then know what your players think of how it's going so far.