Hello!

I would love some help in finalizing our itinerary in Crete. We would like to make the most of our time in Crete while relaxing and not rushing too much. We will have a car for our entire stay in Crete (4 full days). Ideally, our days would include beautiful drives, discovering amazing beaches and eating delicious food in small non-touristy restaurants in traditional Greek villages.

We arrive in Chania from Athens on at night on Aug 31st and depart from Heraklion to Santorini on the morning of Sept 5th.

Here’s the itinerary we’ve come up with so far,
Day 1 - Balos Lagoon, Kaliviani for lunch, Falassarna
Day 2 - Gorge of Samaria (following Rick Steve’s guide which includes Agia Roumeli, Chora Sfakion, Loutro)
Day3 - Elafonissi Beach
Day 4 – Drive from Chania to Heraklion with stops. Possibly Agia Fotini, Agia Galini, Panormos, Knossos…

Are we trying to do too much? Not enough? We were hoping to visit some traditional Greek villages; can we work those into our itinerary?

Any and all suggestions are welcome and greatly appreciated!

It's a shame that your only staying 4 days as Crete is a lovely place to visit, Your activities don't look overwhelming but most planning I ever do doesn't go to plan. You have to put into account that you may get tired from traveling, driving and so forth so it may be wise to have day 2 or 3 as a relax day.
One of the biggest reasons people go on Holiday is to relax and forget their busy lifes, if you push it you may get tired and ruin the experience and on the other hand if one of you get tired then the other may feel like they are missing out.

So I personally wouldn't attempt to much in 4 days, but depends how fit you are I guess

You can easily spend two full days just wandering the Venetian harbour and back alleys of Chania. Your plan does not appear to have any time in Chania which is probably the prettiest city in Greece.
Based on your itinerary you want to go to Balos and Gramovossa. There is a road to Balos but it requires a 4 wheel drive and a fairly steep walk down to the lagoon. You can take the day excursion boat which leaves from Kissamos about 45 minutes from Chania. That is a full day and costs about 25 euros per person. it also stops at the fortress of Gramovosa. You cannot get there by car.
Day 2 is a full day leaving early in the morning. You cannot do this in a car you need to catch the local bus or take a tour. It is a 16KM walk to Agia Roumouli then a ferry ride to Chora Sfakion then a bus ride back to Chania. Many people take a down day after that long hike. Instead of Elafonissi which is a long drive why not head west to Falasarna which has a very good beach and the excavation at Ancient Falsarna. That way you get the beach without the very long drive to Elafonissi.
On the way to Heraklion I would suggest you might consider stopping at ancient Aptera spread out over a mountain top. Don't miss the Roman Cisterns. You probably would also want to plan to stop at Rehtymnon. Its old town area is lovely and save an hour or so to explore the Venetian Era fortezza. If you get into Heraklion later in the afternoon you will probably miss most of the tour buses at Knossos.
You are going to see a lot on this plan but I lament the fact you are not planning any down time to really absorb the area.
Here are images of Chania
http://www.flickr.com/photos/stanbr5...7632117917828/
and Western Crete http://www.flickr.com/photos/stanbr5...7632115757899/
You will see images of all the places I suggested.

Drive to Falasarna from Chania and later continue south to Elafonsisi, a beautiful drive along the coast. Return to Chania from Elafonisi via an inland, mountainous route.You'll see villages. This was one of our favorite days on Crete. The beaches are so different from each other, quite a contrast.
From Chora Skafion take the ferry to Loutro. We spent several days there but you could just have lunch and a swim.
You can also get off at the bottom of the Samarian Gorge and walk up and into it, shorter hike, but still very worthwhile.
Traditional villages: Vamos, Margarites.. Crete is large and beautiful. Lots to explore. You'll need more time there on another trip. Buy detailed maps in advance, Western Crete, from www.road.gr

4 days are way too less for a decent visit of the westernmost part of Crete. Your plans look good, however.
Paleochora would be a nice place too.
I suppose you know that a car is of no use for the Samaria Gorge hike. Take a early morning bus from Chania to Omalos, a boat from Agia Roumeli to Chora Sfakio and a bus back from there to Chania.
Don't foget to visit Rethymnon (scenic city center with Venitian fortress on the waterfront) on your way to Iraklio.
Count half a day for the visit of Knossos and the fine archeological museum (with objects from Knossos) of Iraklio.

Thank you all for your feedback!!!
We are planning to spend our evenings in Chania and the morning of Day 3. I thought that give us enough time to explore the city, given our limited time. I was also hoping that Day 3 would be our "down" day. We would spend the morning in Chania and drive to Elafonissi Beach in late afternoon. Is Elafonissi difficult and long to get to? Will we have trouble leaving from there later in the evening?
@HappyTrvlr - Can you please tell me more about walking to Loutro from Samarian Gorge. It seems like it would be an ideal place to unwind after a hike.
@Neckervd - Where can I find room for Paleochora in our itinerary?
For our drive from Chania to Heraklion, I’m thinking Aptera and Rethymnon. Will there be beaches for us to visit near/in Rethymnon?

Wonderlust the 17th picture in my western Crete album is of Rethymnon beach. I believe it extends from the city for about 26 kilometers. Here is the picture
http://www.flickr.com/photos/stanbr5...57632115757899