place to stay in Oaxaca and best things to do

San Miguel has a population of about 130,000. The city of Oaxaca, not counting the outlying villages has over 300,000. It's much larger.
The Tlacolula market is nice, but it's a rural, shopping for food and staples type of market, like the one in Patzcuaro, only larger.
The three markets in the city of Oaxaca are great, and there every day. The Abastos market is so large and at times overwhelming, that we prefer to visit it not on it's main day. Again, it's a market for shopping, and filling your larder. Both Tlacolula and the Abastos market in Oaxaca city are very much like the little mercado in Zihuatanejo, without the tourist area selling t-shirts and bathing suits, only much larger.
You will have a great time.
Here are our top 5+ things that must be done.
Monte Alban
Mitla-the Tlacolula market is on the way
The Convent Museum, and the botanic gardens in the rear.
The pedestrian only street that starts at the zocalo and goes past the convent museum.
Taste lots of Mezcal-there are opportunities to do that everywhere.
Drink hot chocolate while visiting the Abastos market, and buy pounds of the chocolate tablets to take home.
Yes, we have spend a LOT of time there!