I also reccommend Prague. It's compact, easy to get around in, full of beautiful buildings & friendly locals, and KLM flies there. I've found decent food there. A newer restauarant I discovered on my last visit (sept 05) is owned by the Czech brewery Pilsner-Urquell. It's just across the river from the National Theatre. They have the best goulash soup which they serve in a small loaf of bread. I returned for more.
Hotels in the center are not inexpensive, though, but I've been told that rates drop a bit from mid November to mid December.
I've been wanting to go to Budapest because I've heard wonderful things about it, but I can say from experience that you will love Prague.