You ought to take a guided tour of the Sacred Valley--although I suspect you could book one in Cusco for much less than Southern Explorations. In Cusco itself, all you need is a good guidebook, comfy shoes, and really good physical conditioning, as the altitude makes walking around very tiring.

Lima has great museums and great food. Frommer's chose it as the top place in the world for food in 2012. Fish is great and fairly inexpensive.

There are at least three great archaeological museums in Lima, and you should see at least one, preferably before you go to Cusco. A couple of nites in Lima and the rest in Cusco (plus overnight in Aguas Calientes or at the hotel at MP itself if you're well heeled) would make a very good trip.

I've gone to Peru twice and made my own arrangements, and you can too.

There really is not any reason to use Southern Explorations if you are okay with making your own bookings. You can ask your hotel to arrange taxis for you, and many of them have contacts with local guides. You might also look for some of the recommended local guides in the trip reports here (such as Percy Salas for the Sacred Valley/MP).

Fodors has a good guidebook and their Fodor's Choice recommendations are usually right on. By booking independently may get you into some unique lodgings that SE may not deal with.

If you email a lodging ask if they give a discount for the direct booking (rather than going thru a third party website such as Expedia or booking.com). Many do. OTOH, many also post discounted rates on booking.com or Expedia for last minute bookings.

In Lima, I like Barranco, Second Home Peru is like sleeping in a museum. I am torn to see that my favorite B*B (3B Barranco) is listed (great for them, sad for the reduced availability)! Love the staff there, it's my home away from home and conveniently located to using the Metropolitano.

Many travel agents want you to stay in Cusco the entire time (more convenient for them), but it's harder on your system. IMHO Urubamba or Ollantaytambo are better places to start your time around Machu Picchu. The Sacred Valley is at 9,000 feet altitude, rather than Cusco's 11,000 feet. You still may feel off for a day, but you are less likely to get the headache or nausea. BTW Machu Picchu is even lower.

Thank you both very much. I had a tough time when I was in Cusco 40 years ago, so would love to adjust in an area a bit lower in altitude. though I am traveling with others who, like me, will want to make our plans before we get there ( not take a chance on arranging and not having the options we want), I do like the idea of hand selecting guides and itinerary...and I am sure paying a good deal less as a result.
Any other suggestions will be appreciated.

If you already know that you don't do well at altitude, ask your doctor about taking Diamox before you fly to Cusco.

Two of the nicer hotels in Ollantaytambo are Pakaritampu and El Albergue. There are also lots of big luxury resorts in the Sacred Valley, such as Tambo del Inka, but I prefer "Olly" although it's not quite the quiet village it was when I first visited!