Machu Picchu and the Galapagos are the two major tourist attractions, but there's a wealth of things to see in South America.
It depends what kind of stuff you're into. If you like the roughing it, adventure type of Holiday you can take a trek through the Amazon or hike the Inca Trail. If you like the beach, Brazil is a good bet. If you like the big city cosmopolitan scene, I would definitely recommend Buenos Aries.
I spent just over three weeks there last summer. My route went Lima to Cusco to Machu Picchu to Puno (Peru) to Copa Cabana to La Paz to Santa Cruz (Bolivia) to Buneos Aries (Argentina) to Santiago (Chilie). If you want to check out my pictures they're here:
link to flick set
As for getting between cities, fly whenever possible. Its relatively cheap and buses and trains in South America are very, very slow....