I think Hoi An is the good choice. I'm Vietnamese

If you want to see more than the immediate area of Hoi An and Hue you will need to move around. There are inexpensive, quick flights. Personally, I wouldn't rent a place for two weeks, but I might choose two places and stay a week in each. So given that you want central and south, you might choose a place in Hoi An (though if you want to see Hue, you'll need at least one night there because the drive is long) and a place in HCMC. It is easy to find serviced apartments in HCMC if you would prefer that to a hotel.

I can't imagine driving in Vietnamese traffic. I would hire a car w/ driver or negotiate a daily or hourly rate with a taxi if you don't want to be on a bus.

The only person I've known who rented a private house had a very bad experience. Hotels are inexpensive, or serviced apartments would be good if you want a kitchen.

lcuy is absolutely right - don't even think about driving yourselves. It is easy and inexpensive to hire a car and driver.

we were thinking of 1 week on the coast and another near HCMC but after reading this and talking to a few friends who've been there.... it looks like we will probably do a few nights in Hue, a few in Hoi An, and then the rest down near HCMC to explore the Mekong River - and NO DRIVING OURSELVES!
Thank you for your advice.

Now... do you recommend Dalat? Are we really missing out if we don't go to Halong Bay? Anyone been to Phu Quoc Island?

Would be interested to hear of house rental options in vietnam. Have you found many possibilities for this on web ? Can you point me towards any ?

Dalat is ok but I would not make a special trip to get there. More popular with Vietnamese than western tourist (possibly to escape the heat for a few days. Lak Lake & Pleiku are close by and are very nice. If you are going to way then I would suggest flying to Danang (not much to see there) and get the train to Hue. The train ride through the Marble Mountains and along the coast by China Beach is one of the best train rides around (takes around 3 hours and costs $2!) more info @ http://www.seat61.com/Vietnam.htm

Saigon is great with a lot to see and great restaurants and street food stalls abound. IMO a couple of days in the delta is enough (try for a homestay if you can).

Hue is a big city which I have visited several times and each time it has been wet so don't expect great weather. Do expect some of the best food in Vietnam. A nice place to hire bikes and cycle around to see the imperial tombs & city.

Hoi an is extremely pretty if very busy with tourists (for good reason). Some reasonable beaches nearby and again some nice cycle rides out into the country.

I don't think you are missing out on Halong Bay - my subjective view of course, but I do think it is overated. However, I do think you are missing out on Hanoi but in two weeks I guess you have to leave something out.

Have fun, it is an amazing country.