I left about 2 years ago, so sorry if anything is outdated, but these were some of my favorite things. All the things mentioned above are good ideas and here are a few more...
For lodging on the Monterey Peninsula I would reccomend calling either Resort to Me or Monterey Peninsula Reservations (if they are both still in business). They are "leftover room clearing houses" and we used to work with them alot. They don't charge the guests anything, work like a
travel agent. If you don't want to do that I would reccomend staying away from Seaside which has mostly gross, heap motels and looking in Pacific Grove near Asilomar. There are some campy, fun mom and pop places there. And the Quality Inn there is quite nice. For mid-priced accmoodations I would say the ones in downtown Monterey are a good bet. There is a doubletree and marriott. And of course the Monterey Peninsula has one of the highest concentrations of a classy hotels for its size.
For things to do in Monterey I would reccomend a trip to Lovers Point in Pacific Grove. It is a littel crescent beach and a lovely park and place for a picnic. It is fun to walk around on the surrounding blocks and look at all the dollhouse-like teeny tiny victorian homes. You can continue driving away from Monterey here and stay right on the ocean. It has incredible crashing waves on the rocks and is much of the same ocean view you would get on 17 mile drve without the multimillion dollar homes blocking your view! You end up at Asilomar which was designed by the same arcitect as Hearst Castle.
Downtown Monterey has a Farmers market I think on Tuesdays that was many blocks long. It was wonderful to stroll and munch on fresh fruit and listen to the music. There are many historic buildings in Monterey and I would reccomend the downtown walking tour. The buildings in Monterey are stucco and have a completely different feel from Pacific Groves victorian buildings. Also in Monterey is the Dennis the Menace Park. It is off of Del Monte Blvd. It was designed by longtime resident Hank Ketchum. It is on a lake and you can rent paddle boats from there. You can also walk to the pier from there and look at the boats and take one of the glass bottom sight seeing cruises.
In Carmel it is fun to park and walk their streets too. The buildings here all look like ones out of Tasha Tudor drawings. There are tons of quait, odd little shops here and the beach is one of the most beautiful I have ever seen. The Monterey Mission is in Carmel and is actually where Father Serra is buried. Clint Eastwoods Mission Ranch Inn is here and is the new spot to go to spot him. Carmel Valley is where the vineyards are and is quite beautiful and almost guaranteed sunny. Many of the small motels here allow people to come out and pay to use their pool for the say during the week and this is a good option to find some sun if it is fogged in on the coast.
North of the Peninsula is Castroville, Artichoke Capitol of the World. Not much to see here excpet a giant building shaped like n artichoke. Continuing North towards Santa Crus is one of my FAVORITE places. It is in Watsonville and called Gzdich Ranch. They are a U-Pick farm and you can go with your own bucket and pick gobs and gobs of fresh strawberries, boysenberries and raspberries in the early summer and apples in the late summer and fall. It is a working farm so your kids can see how it all works and they have a great picnic/play area and pies! Yummy!
Also, in Gilroy is a HUGE outlet mall that is great fun for shopping.
Have a great time. It is a wonderful place to visit!
Jennifer