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I am based in Peru now for business and can give you a few tips. Incidentally I went to Cuzco and Machu Pichu for the first time last December since a friend came from Canada to see Peru...
Two weeks is going to be a pretty packed schedule for all that you want to do. Especially since you want to hike the inca trail (3 or 5 day version?). Cuzco is a write-off the first day because you WILL get altitude sickness (buy Soroche Pills to combat this) and can be comfortably done (Cuzco, Inca Trail, Machu Pichu) in 5 or 6 days. Then you can take the train to Puno where lake Titicaca is, or fly back to Lima and fly to Puno.
Im not much for ruins so we flew in on a Thursday and did the Cuzco Ruins tours (take the pills to avoid sickness), did the train to Machu Pichu and Machu Pichu tour (3hours) and back to Cuzco on Friday, went clubbing Friday night (great!), and left Saturday afternoon to party in Lima saturday night.
There are major ruins within a 10 minute drive from Cuzco (Sacsayhuman, Coricancha etc.) The Cuzco ruin tour should be $10 - $20USD including transportation and an English speaking tour guide. The tour is about 5 hours long an includes 4 ruins and a stop to buy souvenirs at the end.
A family member is managing partner and part owner of Peru's biggest private equity fund which is the owner of both Cuzco's best hotel (Google "Hotel Monasterio" No. 1 hotel in South America) and Peru Rail (the train from Cuzco to Machu Pichu and Puno) so I got everything for free and can't tell you regular prices. I do know the hotel was $700/night and the train from Cuzco to Machu Pichu was about $110USD return in the second-highest class. If you stay at a hostel and ride backpacker class on the train then Cuzco is quite cheap. If you have your old UBC ID bring it to Cuzco as you can save on ALL the ruins entry fee by getting the student price.
Arequipa I've never been though I hear it's nice.
I would fly Lan inside and/or to Peru (from LAX). Their fleet is about 2 years old and they have excellent service.
DO NOT TAKE INTER-PROVINCIAL BUSES. Too many crash or get robbed in the middle of the night. Fly Lan. It's cheap, safe and efficient. Remember that most of Peru is very mountainous and roads are not great.
Lots to do in Lima. Forget the National Geographic image of Peru that you may have in mind. Upper-class Lima is as nice and fun as anywhere in Canada or Asia. If I'm not travelling when you come I could show you around. AMAZING restaurants (Peruvian cuisine is No. 1 in South America), good wine, nice lounges and crazy VIP oceanside clubs full of hot tall white and asian-latino mixed Peruvian girls where a bottle of Moet is $50 and a bottle of Grey Goose is $120... Lima is sweeet for those of us who have the money.
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