We are planning for 10 day trip to Istanbul and Cappadocia sometime mid may.

Here is what our high level itinerary looks like :
Day 1: Land in istanbul in the evening stay by the airport
Day 2; catch the first flight to cappadocia
Stay in Cappadocia for 3 nights
Fly back to isntanbul and spend 5 nights
fly back home

- We are not plannig to rent a car is the public transportation good in istanbul?
- How easy is it to get from point a to point b in cappadocia?
- what are some must do's in both of these places?
- I have heard the spices and rugs are a must buy is that true and any tips on bargaining the price?

Once you identify what you wish to do in Cappadocia, we can advise if a car is needed or not. You absolutely do not need or want one in Istanbul!
A guide book or a website like turkeytravelplanner will get you started.

Rugs are a must only if you like them. There will be plenty of salesmen chasing you down the street with invites to their shops.
Turkey is a beautiful country, one of my favorites.

Do not buy rugs in Istanbul.

Check designs, types and prices on the web, decide on what you would like and your budget and then look at those sold in Cappadocia where you should get better deals.

There are many great trip reports on this Forum telling of things they enjoyed doing and places worth visiting. You will probably find them as useful as travel books in planning your days.

You've already gotten some great input! To add just a bit:

Give some thought to flying on to Cappadocia that first night. You'll be tired, but you'll be tired under any circumstance, and if you can manage it, you'll save some time.

Public transportation should serve you extremely well in Istanbul. As yorkshire notes, whether a car would help in Cappadocia depends on what, exactly, you want to do, but there are a LOT of options for tours or drivers in the area, and it certainly CAN be visited without a car if that is your preference.

I strongly recommend that you get AT LEAST one good guidebook -- it will cover things that you won't even think to ask! Of the half dozen I used when planning my time in the area, I found the Rough Guide by far the best.

Bottom line with bargaining: Know what YOU are willing to pay, be courteous, and walk away if the seller doesn't come down that low.

May is a wonderful time to visit Turkey - enjoy!