-As for current abilities, do keep in mind that my neck of the woods - Norway - is rather peaceful in the grand scheme of things; we average some 30-odd murders a year among a population of some 5M. In roughly 80% of the murders the murder and the victim had some relation - family, friends - so random murders are, overall, pretty rare.
This probably helps keep the recidivism rate low; the average murderer - to paraphrase a long-term official at our criminal police - is an average guy who've just had the worst moment of his life, killing someone he loved and cared about. You wouldn't be all that likely to find yourself in similar circumstances again.
I've tried to dig up statistics on how many people in Norway have been convicted of murder more than once - I couldn't find any, though I seem to recall having heard of two or three.
With these circumstances as a starting point, rehabilitation is probably more beneficial to society than going for the all-in punishment experience - once enough time is served that society feels you've paid for your crime, to some extent, there really isn't much to be gained from keeping you locked up anymore. To reflect this, the maximum prison term is 21 years (unless you're convicted of crimes against humanity, in which case the maximum is 30 years)
To ease your way back into society, you're automatically eligible for parole once you've served 2/3 of the punishment committed, as long as you've behaved reasonably well in prison (unless you were considered particularly dangerous and likely to be a lasting danger to society, in which case you may get an indefinite sentence (with regular reviews, where parole is an option if circumstances change).)
The last part of your mandatory sentence (that is, first 2/3) sees restrictions being gradually lifted - say, you get to live in halfway houses, take up a job/studies outside prison, having to return immediately to prison/halfway house once your work/lectures end.
The idea, obviously, being to prepare you for return to society. Mostly this works; we've got a recidivism rate of some 20-25% or so for the whole imprisoned population; for murderers, it must be in the low single digits.
I do, however, appreciate that this approach works better with 'our' kind of murderers - people who've committed one murder and are unlikely to ever commit another.
Oh, and don't get me wrong - cost shouldn't be the overriding concern; I was more thinking the opposite - that if one wanted to eliminate a criminal from society for good, capital punishment doesn't even make economical sense - other solutions are just as effective, cheaper and allowing for the state to admit its mistake to the wrongfully convicted rather than to his bereaved.
Manson et al are - I hope - outliers in the US, too - so the challenge is designing a system which 'works' on the majority of people deemed unfit to walk free, without degenerating into a system designed to handle the Mansonitic minority.
You do bring up some interesting thoughts; I'll probably end up pondering your points repeatedly throughout the weekend. I love HN!