EDIT: I should clarify, if that is not the case at Grand Cayman, it jumps very high on my list. I'm just wary since it seems too good to be true that stingrays would feel comfortable swimming amongst a bunch of snorkelers.

Both TCI and GC should offer what you are looking for - upscale accomodations, great dining, killer beach(es), fantastic diving (better chance of seeing sharks in TCI, more sites in GC), lack of nightlife (TCI more so than GC), lack of shopping (more so in TCI), awesome snorkeling (GC more so than TCI), wild dolphins (JoJo in Provo and Stinky in GC).

Sting Ray City sand bar or dive site can certainly appear to be a tourist trap, but trust me, it is an awe inspiring natural expereience you will find hard to forget. Just do a search for reviews of Sting Ray City and read how many people thought it would be a hokey outing, only to return praising how cool it was I am one of those).

Although a completely different kind of trip, perhaps, you should consider Belize. The diving and snorkeling is top notch.

Beaches are not as good as Caymen or T&C by a long shot.

However, in addition to dolphins, rays and sharks, you could do tours on mainland Belize and see a couple different species of monkeys, crocodiles, possibly toucans.

cozumel has good snorkeling but would be most touristy of your choices. bahamas will be too cool - both air & water temps.
if you want to dive, take the paper portion of the dive course on line from home. click the open water course link from http://www.padi.com/scuba/ then do the in the water portion on island. no point using vacation time for studying!

you are correct that gc & t&c has some of best snorkel/dive.
t&c has some of the best dining in the islands, but lacks nonwater oriented activities - the beach is stunning & almost every resort is beachfront.
grand caymen has good dining, a few low key sights - turtle farm, dolphin experience http://www.dolphindiscovery.com/grand-cayman/cayman-location-overview.asp , botanical gardens http://www.botanic-park.ky/
& mastic trail which is hike thru indigenous interior area. my best friend is a very experienced diver & thought stingray city was wonderful & not hokey
the stingrays started massing in this location some time ago when fishermen used to stop in the vicinity to clean their catch. they continue to come out of habit plus the tour operaters give you fish pieces to entice them.

if your budget is generous you could consider palm island resort in st. vincent & grenadines. http://www.palmislandresortgrenadines.com/
it's a small private island with boat access to what most consider best snorkeling in caribbean at tobago cays. http://tobagocays.org/ food is good but not really many other activities.
another option is somewhere in the vicinity of akumal, mexico which is about 75 mins south of cancun. small town, good snorkel/diving & tons of to do's like touring mayan ruins, ziplines, atv jungle rides, exploring cenotes, 2 eco marine fun parks & duty free shopping in playa del carmen, & very bduget friendly. you can find info on the area at locogringo.com

once you choose a location & budget we can help you find lodging.

Thanks for the tips everyone! I think we have narrowed it down to either Cayman or Bahamas. We are considering Bahamas simply because I feel it is a lot cheaper than Cayman, especially with the flight alone. Also, one thing that attracted us to Bahamas is the option of the shark dive. It sounds terrifying but I would love to see a shark!

As far as lodging, I think we've decided on a budget of less than $300/night. What can you recommend for both places? We are interested in either villas or a nice hotel.

It could potentially be fairly chilly in the Bahamas when you want to travel. It isn't very far south......not really even in the Caribbean....

bahamas: air temps in jan will average 65 to low 70's. you might get a day of 75. water temps will be in low 70's & full 3mm wetsuits are advised.

gc: air 75-85. ocean 78-82. westin or marriott. condos; plantana, discovery point, christopher columbus, villas of the galleon. http://www.caymanvacations.com/grand-cayman-rental-condos.shtml the northern end of the beach offers more privacy.

For that budget at peak season you need to look into Cozumel or Costa Maya (Tulum)

Your other choices are a lit more during that time period.

My suggestions meet your criteria and will be in your budget.

Is there anyway you can go the first or second week of December? You will find much better prices. We go somewhere every year at that time because it's so much more economical.

Grand Cayman has everything your looking for. T & C is a good second choice. The Bahamas will be too cool to enjoy that time of year.

Hmm, okay, thanks, I totally ignored a basic detail such as weather! LOL! I actually think 60s-70s air temps are perfect, but since we are determined to snorkel, I think that may rule out Bahamas...

After looking at some hotel prices I still think GC is within our budget. I did see that prices essentially double during the time period we are considering, but unfortunately that's the only time we can go due to work. I will also look some more at Cozumel but I think we are still leaning towards Cayman.

Also, we are probably going to rule out a villa or condo since it seems too pricey. I saw a couple hotels on 7 Mile Beach have "island/garden view" rooms for less than $300. As long as the hotel itself (not necessarily the room) is on the beach, we don't mind. Do these have nice beaches? I read some reviews of the more secluded hotels that are away from 7 Mile Beach, and some people seemed to say they had rocky beaches.

Since it is your first time to Grand Cayman, the best place to stay is the Seven Mile Beach area. The Westin has the best beach of all Seven Mile Beach hotels, it was a bit run down, but it is being renovated at this time. The Marriott has little beach front. The Ritz Carlton and the Beach Suites are out of your price range. The Comfort Suites and the Sunshine Suites are not on the beach. the Comfort Suites has a path to the beach and the Sunshine Suites is across a busy street from the beach.

The hotels in the East End and Boddentown area have rocky beaches. They area also away from most of the restaurants and bars.

Great, thanks for the tips, I booked the Westin!

Great stretch of beach at the Westin. Good info on places to snorkel off Grand Cayman, though the better areas are not near Seven Mile Beach.
http://caymansnorkelblog.blogspot.com/