My favorite state in Mexico is definitely Oaxaca. Oaxaca is second most southern state in Mexico near the Guatemala border. It's roughly about as far south as Belize and has decent climate. It has untouristed beaches facing south, excellent ancient ruins like Mitla and Mont Alban a ancient hilltop Zapotec village with planetarium, ball court and hospital. There is just enough tourism for services to be available but not enough to be really irritating like the entire east coast of the Yukatan Peninsula or the many west coast resort towns like Acapulco, Mazatlan, and Puerta Villarta. But the real reason I like Oaxaca is for the nice people and the wonderful food. Even among Mexicans the Oaxacans excel. Oaxaca is billed as the land of the 7 moles. If you haven't had mole you need to fly to Oaxaca. Don't go to your local Azteca for it because you'll decide that you don't like it. That's about the same as going to Olive Garden and having "Italian" food (pronounced with a long i!). If you're wanting to know a bit more about mole visit the Wikipedia page on mole.
Be sure when I tell you though that excellent Mole is absolutely divine. My favorite is some Mole Rojo I had in the valley outside of Mitla east of Oaxaca city. The second best was Mole Negro in the Zocolo at Oaxaca City. There are only two places in the Seattle area where I'd buy Mole which are Frida's in South Everett and La Carta De Oaxaca in Ballard.
So back to Oaxaca. If I were in Oaxaca with $100 in my pocket I'd sleep in the streets and eat in the restaurants it's that good. I was recently in Play del Carmen and didn't have one meal that was worth eating and that includes the really expensive places. It seems that the Mexicans there are too poor to make good food and the tourists don't know the difference. I tried explaining to a man from Barcelona when asked if I like Mexican food that the food in Playa is NOT a good representation of Mexican food. As a matter of fact I think if I had to eat that food for any length of time someone might as well shoot me.
Anyway the reason I'm posting about Oaxaca is things are settling down there. They've been in the middle of a mini civil war for the last 18 months and things are starting to settle down. They are so much into food they have an annual Food of the God's celebration (renamed to a very boring Taste of Oaxaca celebration) but this year was canceled because of low tourist turnout.
Right now you can get hotels for a decent price ($5-60 for a double) and there are cooking classes etc.. available. People are making deals because of the low tourism. Some cooking schools and Spanish language schools have had to relocate because nobody is going to Oaxaca. When we were there we stayed at Casa Arnel which we loved. It's not a fancy hotel but more of a bed and breakfast/hacienda style place. You can get a double for $40 a night ( 2 people) and rent a room by the month for $450 (very tempting).
I also just ran across this website of the B&B Oaxaca which is an organization of Bed and Breakfasts that have teamed up together to survive the draught of tourism. There are cooking classes listed as well.
You can find my Photo Album of Oaxaca on this site as well as my Central Mexico Trip Journal.