Carm, I was Peru in 2000, during the second last election, and pretty much did the same route.
Most memorable for me was hiking Macchu Picchu. We were able to do it w/out a guide, and I have to say it was one of the most amazing treks I have done to date. I found it quite difficult at time, carrying all our own gear,but it was so well worth it! VERY cold at night. Things were slightly hairy in Lima as the election was going on and there was a huge military presence everywhere. I remember walking thru the Plaza de Armas in Lima and seeing thousands of miltary officials with these huge shields and massive guns. A bit intimidating, but we didn't experience any trouble tho.
Colca Canyon would be a favourite for me as well. You can get a tour from Arequipa. We took a few days and did a tour thru staying in Chivay visiting the hot springs and small mountian towns along the way. Condor's Pass, or Mirador Cruz del Condor was awe-inspiring for me. The Condors fly on the thermal current, and are absolutley magnificent to watch! Their wings span 10 ft! I think this is a must-see!
Arequipa is gorgeous as well. The architecture is beautiful. Lake Titicaca is wonderful to see as well as Puno. Really, the landscape, the people, everything was phenomenal. And yes, there is no lack of anything to do or see in Cusco and surrounding. Loads of day trips: Paucartambo, Tres Cruses and definitely Tipon are some I did and fully enjoyed. There is just so much history there, it's enough to blow your mind! Sorry I can't remember anymore details at the moment, but will think on it. Surely I can think of some more useful tips. Oh, you've definitely got to try the dune boarding! So fun!
'Yesterday's the past and tomorrow's the future. Today is a gift - which is why they call it the present.'