Seems like your whole trip used Cusco as a home-base.
First of all, Cusco is pretty far away from Lima. I'll bet it's at least a 6 hour drive, probably 8-10. You might consider a plane. All Cusco airport traffic occurs in the morning (winds make the pm
unbearable), so you'll have the whole afternoon to sightsee.
I'm flying into Lima. Is it safe?
Lima is a dangerous city, even in the daytime. I wouldn't stay anywhere in Lima. When I travelled I stayed in a suburb called Miraflores which was pretty nice. Don't leave the airport without having a driver first. Legitimate taxi drivers will meet you inside the building. There's nothing to do/see in Lima compared to the other sites, so don't bother risking a day there.
When is the best time to go to Peru?
August or September might be a nice time to visit. I was there in July and the weather was perfect! Nevertheless, you should research when the rainy season starts just to be sure.
Where should I stay in Cusco?
Cusco is a charming city, especially near the town square called Plaza de Armas. If you can stay near there, I'd recommend it. Everything is within walking distance, even Sacsayhuaman ruins. Not sure where the train station is to see Machu Picchu, but cabs are available.
Should I just go myself, or should I take a tour?
There are many ruins and sites to see on the way to Machu Picchu and around Cusco. My tour guide was fairly worthless as a source of information, but the tour itself was useful in getting us to all of these sites. A tour will also set you up with Lima accomodations and transfers. Click on any of the ads that appear on my Peru pages to learn more. They will do way better than a Littleton travel agent, even with your frequent flyer miles. And they will set you up with a number of other fun travelers to share your experiences. Just don't bother with Adventure Life, the tour company I used. They had enough problems where I would advise you to steer clear.
Tour or not, make sure you save yourself at least one day on your own -- there is bound to be something that you want to see again in depth or that was missed on the tour. On at least every block around the Plaza de Armas is a tourist booth that can set you up with whatever you need, usually at competing discounts. I have no experience with these booths, just passed them by. Horseback riding around the Cusco ruins is an example of something I wish I had an extra day to try.
If you know Spanish, it will come in handy. English is not spoken very prevalently, although most people take US$ in addition to Peruvian soles. If you have a GSM cellphone (ATT/Cingular/T-Mobile) you can setup an international plan (usually no charge) and send text messages for [almost] free from the top of Machu Picchu and all around Cusco. Voice calls are very expensive, though.
Make sure you get to spend time on 2 consecutive days at Machu Picchu. It is a jaw-dropping place that you just can't travel across the world to see on an afternoon. And the weather might be poor one day, so you can improve your odds. My tour gave me a couple hours in the afternoon on arrival and most of the next day.
If you want the best guidebook there is, get yourself a copy of Peter Frost's "Exploring Cusco." It has historical information that no other guidebook has.
Peru is the absolute worst place on earth for pesky street vendors. Unless you are within the Machu Picchu grounds or in a building, you will not experience a period of 5 minutes free of someone (usually a child) trying to sell you tourist trinkets or postcards. Get used to it now.
Finally, take note of the fact that the largest expense on an international trip is the airfare. If you are getting there for free, you can effectively extend your vacation and see a lot more, and the $$/day you spend may actually be less on a longer trip. Try a couple of scenarios and calculate it out. You'll spend more money, but get more value. If you ever wanted to see the Amazon River Basin, this is your chance.
