Barbara Hopkins's Oaxaca: Crafts and Sightseeing is a bit dated and now out of print but worthwhile if you can find a cheap used copy. You'll want to hit the Monte Albán and Mitla ruins. For handicrafts, hire a taxi or join the chickens and piglets on the local buses to the various villages: Teotitlán del Valle for rugs, Ocotlán for pottery, Tlacolula for market day (Sunday?), and Azzazola for wood carvings.

Also, see this thread for dining suggestions.