our itenary has been finalized. we will be based in beautiful Dresden. we have 2 days and want to stay near dresden. which of these would you prefer.

I like Erfurt better personally. You could check out cityalbum.de and click on the information links, they are in German. I do know Leipzig has a Weihnachtsmarkt beginning in the end of November
should you be there over the holidays.

I have already answered to your Christmas market question before finding this one - so those two replies should be seen together. There I recommended staying in Dresden. A one-day jump to Leipzig could be done from there.
On the other hand, as you are considering Erfurt, that's a different story. Erfurt is a hidden gem hardly anybody knows. I spent two weeks there last year for business and LOVED it. Of course, Erfurt has a Christmas market, too, held in the beautiful square below the cathedral hill. Leipzig has more big-city feeling, Erfurt is a bit smaller but still has enough to offer. Erfurdia turrita - Erfurt full of towers - the old nickname of the city is still valid. There is hardly a street corner in the centre where you won't see at least 2 or 3 steeples. A mix of great history and modern life, cute small shops.
Stay in the city centre, if possible. Most of the suburbs are rather ugly.

The city's official website: http://www.erfurt.de/ef/en/
Erfurt tourist office: http://www.erfurt-tourismus.de/en/ - also contains info about alltypes of accommodation available. If you want a very special place to stay, have a closer look at Augustinerkloster.

I was in Erfurt in 1999 and was underwhelmed by the city beyond the "twin" churches. Perhaps it has changed a lot since then, but at that time I thought it wasn't ready for tourism yet. I'd love to learn more from Quokka what other treasures/wonderful things to do in Erfurt.

I was just in Leipzig for two nights last month and had a great time, but I wasn't really looking for special touristic places or monuments. There is a well renovated cityhall, Thomaskirche with its famous choir and another great major church. I think Leipzig by far has a much better developed commercial center than Erfurt. I was impressed by how comfortable the city was and how well they developed the old town. It is a lively student town with an abundance of cultural events besides being an important trade convention & commercial center.

Erfurt has, indeed, developed a lot in the recent years. I've been travelling a lot in the former East, especially Thüringen and Sachsen-Anhalt, in 2001 and again in 2004/2005, and there were two places that surprised me on my second visit: Erfurt and Nordhausen.

Erfurt, capital of Thüringen, has turned into a lively centre, it seemed much livelier to me than many other ex-GDR cities I saw. Erfurt has got the newest opera house in the whole of Germany, opened in 2003, a must-see for those who are interested in modern architecture. (Check what's on.) Augustinerkloster, the monastery where Luther spent some years as a monk before becoming professor in Wittenberg, is worth seeing: Church, closter etc. The former monastery buildings now contain a guest-house/hotel, which is where I want to stay during my next visit to Erfurt. Many old houses have been restored or are in the process. Krämerbrücke is a bridge with houses and little shops on it, similar to Ponte Vecchio in Florence. More small shops can be found in the streets of the historical centre. Domberg, the hill with the cathedral and St. Severi church, is not to be missed. Besides, there is a number of other medieval churches, and it's worth having a closer look at one or the other. I've never been to Erfurt Christmas market but heard good things about it. For 2 days, I consider Erfurt a good choice.

Sure, Leipzig is bigger and thus has more opportunities for shopping and big-city life. Most of those big shops, however, belong to chains that can be found at Dresden as well. In general, I'd recommend all visitors to Germany to have a look at smaller places, not only at the large cities. In Dresden, the OP will see a lot of baroque buildings and history. Erfurt will add some insight on medieval Germany.