We arrive Toulouse on a Saturday afternoon and depart the next Sunday afternoon from Lyon. We have never been to the area. Our flight into Toulouse arrives around 4:30 so will probably stay there the first night since we will have had a long day of travelling. So we have 7 nights after that to plan. Seeing the rhone/Lyon is not a priority for this trip so we plan on driving up to Lyon on the Sunday we leave.

Want to see some of the standard highlights of L/R - some Cathar castles, Toulouse-Lautrec museum. Carcassone, Pont du Gard, Aigues Mortes, Roman ruins in Nimes. Food and wine is important, so we plan on visiting some wineries as well, esp some in the area near Perpignan. Also food stops like Castelnaudry for Cassoulet, Marseille for Bouillabaisse, etc are an option. In Provence want to spend a little time in Avignon and Aix, and just wandering among the other towns (Arles, etc).

The big question I am trying to figure out for planning is whether to stay in 2-3 places for 2-3 nights each (say near Perpignan, Beziers, and Avignon), or if it's silly to waste the time driving back every day and instead do a more road trippy itinerary where we stay in a different place most nights so we don't need to double back every day. The distances all seem short but I imagine they might take a while given the terrain.

If anyone has thoughts on a decent way to do this itinerary, towns to stay in, etc, please let me know. Thanks in advance.

I'd stay in Toulouse a tad longer as a base and then in one other place before Lyon as the distances aren't bad. Nimes and Arles are both well-positioned. If you like smaller, Arles would be a sweet place to come "home" to IMO. Nimes larger (?) but a great town. Ease of driving should be addressed by other Fodorites as hub and I trained everywhere.

I do understand wanting to go in one direction, but you will lose 1/2 day at a minimum with each change of hotel. We liked having a base large enough to have a real choice of restos/bars at the end of the touristy day.

We have based in Montpellier and Aix and seen much of what you mention but by train and one van tour.

For the first leg of the trip and after a day in Toulouse/Albi I would chose a base between Carcassonne and Perpignan - Quillan or Limoux for the Cathar Castles, for cassoulet and for wineries (you won't be far from the Corbieres area - Maury, Estagel, etc...)
I would not use Toulouse as a base as it is quite a distance from Perpignan (200 km). Plus you'd have to find a parking place every night whereas it is easy to park in smaller towns.