We'll arrive at Seatac and have our rental car by 1:30 pm. Is there enough time for catching the 5:20 pm ferry leaving from Port Angeles?

Yes. It is 125 miles and 2.5 hours. Use I-5, 16, 3 and US 101.
If you were only going to walk around Victoria, you could leave the car in Port Angeles and save some money.
At some time, try to see Hurricane Ridge in Olympic NP.

Thanks Tom, I just looked up the beautiful photos of Hurricaine ridge...WOW!! If we visited there before flying back, is it easier to get there from the ferry terminal at Anacortes or Port Angeles?

Hurricane Ridge is as tomfuller said on the Olympic Peninsula where Port Angeles is. Annacortes is in a different area altogether (North of Seattle not on the Peninsula) Be sure to get reservations for the Coho it is a must that time of year (assume you are coming in the summer due to the ferry time you mentioned) We came back home to Victoria at a time when you never need reservations and were the last car on leaving a lot of cars behind.

Thanks traveller69, How far is Hurricaine ridge from the ferry terminal?

I just found this: Getting to the Ridge. About 17 miles south of Port Angeles, Hurricane Ridge is reached by taking Hwy 101 into Port Angeles, then turning south on Race Street, and take a slight right curve on to the Hurricane Ridge Parkway. From there you will see signs leading to the Park Entrance.
But on the same page it says "Head south from Port Angeles and in less than an hour you can see Mount Carrie and Mount Olympus. Is this due to slower mountain driving times?

Any suggestions on where to spend the night if catching the early ferry from Port Angeles?

There are a lot of motels in Port Angeles - nothing very upscale just basic accommodations. I find them quite pricey for what you get but if you are getting the early ferry it is nice to be so close to the dock. As I mentioned in a previous post be sure to make a reservation.

it's not the least expensive, but it is very close to the ferry and the ocean front rooms have great views: The Red Lion Inn , about a 1 minute drive, 5 minute walk to the ferry
cheers
AndrewDavid