I did mine in 2006 and what i did is print out the form, stick 2x2 photo, money order and old passport and stamped fedex return envelop. I got mine in few weeks. I think not even a month. Sent in the fedex receipent signature required mail.

They did not sent my passport to Nepal to renew. They did it here  I guess. (written in passport -renewed city - washington dc)
I wonder why they are sending your passport to Nepal. May be due to MRP passport.
Mine was no hassle. I did not even contact embassy. I just went to website and follow what they said and sent it.

Just keep the photocopies of all the passport and visa pages.