Cuzco is a nice town, with a couple of interesting inca sites right there. There is an amazing helicopter ride (breathtaking views of the Andes) to Machu Pichu, and a train that goes up in the morning (takes 3 hrs) and returns in the evening. Lonely Planet has a decent description. We went up by helicopter and returned by train.
One word of caution: If you take the train to Machu Pichu, it actually stops a busride away from the actual site. The buses only run till about 1.30 pm. So go directly to Machu Pichu (or at least inquire). We missed the last bus checking into a hotel.