I'm glad you posted and hope I/we can clarify some things for you, but I'm confused about a few things in your post. Let me ask some clarifying questions and offer some information.
What do you mean by "one on each side?" Does your father have one schwannoma (on one side of his head) or two (one on each side -- referred to as "bilateral")? Do you mean that he has one schwannoma with two cysts growing out of it?
From the your description of his balance problems, it sounds like the latter is the case...?
Cysts are tricky things. Usually they are one of two things: a pocket of tumor filled with what is essentially decomposing tumor tissue, or a balloon-like appendage to a tumor where the tumor has had some internal bleeding. In either case, cysts *can* appear quickly and cause problems for people, but there is no way to predict when/if this will happen. So it's *possible* the cysts are new... you can find this out by looking at your dad's older MRIs and comparing them with his recent one(s).
What are the dimensions of the tumor and the cysts? Marbles can vary appreciably in size.
The tumor being next to the brainstem is tricky and probably the biggest reason for spacing out the radiation dose over 30 treatments (this is called "fractionation"). Bigger tumors (3 cm is the usual cut-off point) ARE harder to treat with radiation, so they are often treated with "excision" (cutting them out in surgery), especially if they are next to sensitive things like the brainstem. But the surgery itself is very serious, and your dad's age is probably making doctors nervous about cutting open his skull (I just had the surgery and it's been very hard at times, and I'm only 34!). Thus (probably) the decision to try radiation.
So as you can see, there are a lot of factors that go into determining treatments -- age, size of tumor, location of tumor, etc.
To answer your bolded questions: cysts are common in schwannomas (my tumor was part solid and part cystic); my course of treatment was surgery (but that's due to many different factors); and my outcome has been great so far, but results will vary with all of the factors that go into determining treatment -- especially age, which unfortunately is not on your dad's side.
Hope that helps a bit. Feel free to ask more questions.