place to stay in Oaxaca and best things to do

Great list! A couple other favorites as well:

Museo Rufino Tamayo - outstanding pre-Hispanic art collection. Loved the soft lighting which compliments the works.

Hierve el Agua - bubbling mineral springs run into natural infinity pools right on a cliff's edge with spectacular panoramas. Water dribbling over the cliff edge for millennia has created mineral formations that look like huge frozen waterfalls.

We took a day-long tour to Mitla, Tule, a textile village and Hierve el Agua. It was well worth leaving the driving to someone who was experienced with the narrow roads up the mountain to the falls.