I was in Lisbon last year and I would definitely recommend it, it's a beautiful city. The public transport is good but you'll probably spend more time just wandering around taking in the city. There are lots of steep hills, one in particular which a tram runs on. While there is lots to see, I found it interesting just visiting the different areas. Sights/activities include the Castle, do a few tram rides through the little old streets, go to Belem, Sintra - can't remember what else we did.
There are lots of good restaurants, very reasonable. We stayed in Residencial Alegria, a lovely little hotel, quite traditional, very central, about 10 mins walk from main square. There are recommended by one of the guidebook (LP I think), I think I had to phone them to make the booking. It was quite reasonable, about 50/60 euro per room per night. There are actually reviews of it on