We just spent a week and the half in Peru and had an amazing time. So much to see, so much good food to eat, such nice people. A friend is going there quite soon and asked me for some suggestions, so I figured I would put them out here.

Splurge and spend a couple days at Machu Picchu at the Machu Picchu Pueblo Hotel. Take the one-day Inka trail hike up to Machu Picchu and get the feel of the mountains and the views and see the other nearby ruins (assuming you haven't gotten here by doing the four-day hike!). if you take the one day hike you get there in the later afternoon when the crowds (this is a relative term) go away and it is pretty empty again. Then you can wake up later the next day but still make it there nice and early (since you got up way way early the previous morning) around 8 a.m. before all the crowds from Cusco arrive on the first trains.

Pisac
Hotel Pisac (on the square)

Cusco
Cafe Varayoc -- Plaza Regocijo, Espaderos 142
Inkafe -- (Cafe) Choquechaca 131a (on the way up to San Blas)
Werner and Ana -- Plaza San Francisco 295, modern/fashionably styled alpaca clothing (made locally)

Lima
Hotel Antigua Miraflores -- Grau 350, in Miraflores