Canada Day in Ottawa is something that, IMHO, every Canadian should do at least once. It's an amazingly great time. Blocks upon blocks of people, all wearing the red and white with music, activities, buskers and artists at every turn. There are generally well over 100,000 people at the celebration and I'd expect this year to be one of the biggest ever.
The the PP said, book now. Rooms are very hard to get that week, especially with the special guests this year. Plus with July 1st being on a Friday this year, there will be even more people due it being a true long weekend. Better yet, reconnect with some old friends who live in Ottawa and see if they'll put you up for the weekend

It seems that every neighbourhood has their own Canada Day party as well.
The official site for the Canada Day celebrations is
http://www.canadascapital.gc.ca/canadaday/
There's no 2011 information up yet but I bet it'll be there soon. You can get a good idea from last year's details about what to expect.
Most museums are open and free on Canada Day, but chances are you'll have a full day of activities in and around Parliament Hill and will want to do the museums another day that week.