St Augustine ties with WDW as my favorite place on earth! Things to do: buy trolley tickets for a tour of the historic and touristy sites (you can get on and off at any stop--you can buy tickets that are good for up to 3 days).
Go to Anastasia State Park for the most beautiful, no-driving beach, and rent a bike, kayak, or wind-surfer, if you are so inclined (there is quiet water as well as the Atlantic Ocean at the park). Climb to the top of the lighthouse! Tour the fort. Walk over the Bridge of Lions! Take a ghost tour (riding in a hearse or bus or walking.). Visit the Alligator Farm, a historic landmark and formerly corny tourist trap that has transformed into a true zoological park. Walk around the historic area for great shopping and restaurants. Go to the St Augustine Outlet Center for bargain shopping.
Our favorite restaurant is AIA Aleworks. Ask to be seated outside for the BEST view in St Augustine--you can see the bay, the city marina, and people-watch all the tourists walking around the historic district! The food is good, the ambience is unbeatable!
For the best pizza of your life, eat at PizzaAlley on St George Street. For the most beautiful, unusual jewelry, shop at Tarpon Jewelry, also on St George Street.
Breakfast (I shouldn't share this because it's a tiny place and always packed with locals--I hate to see them get MORE crowded!)--go to Mary's Harborside Cafe, directly across from the bay and next to the Monterey Inn. They have the best omelets in St Augustine, and I love their fresh-fruit-and bagel special.
DH and I have stayed at the Monterey In at least 20 times. It's just your basic, 50s era motel with funky old furniture, but it is very clean and well-kept. It's directly across from the bay and in the heart of the historic district. If I could afford it, I'd stay at one of the bayfront bed-and-breakfasts (Casablanca Inn or the Casa de la Paz are gorgeous and bayfront)--they are out of my pricerange but maybe not out of yours!
Have a wonderful time!