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@30miles
I'd definitely recommend staying in the centre of town. The public transport network is good but it closes down fairly early for a city that doesn't really get going until 11pm or later, and finding a cab isn't as easy as it might be (for one thing, a fair chunk of central Valencia is pedestrianised). Also, the middle of town is really atmospheric after dark, which is more than can be said for the waterfront. We stayed here, which was both decent and central.
The City of Arts & Sciences is very impressive; it has a wow factor that photographs don't really capture. Otherwise, it's really just a good city for wandering (again, the historic centre is lovely) or lounging around (the beaches are pretty nice).
One word of warning: more or less every street has two names (one in Spanish, one in Valencian), but there's real inconsistency in how they're labelled, both on streets and on local maps (which are further complicated by the array of tiny alleys everywhere). I remember this being a real faff...
When are you going? We were there during Valencia Restaurant Week last autumn, and it's coming up again in a couple of weeks. We ate stupendously well for far less money than would otherwise have been the case. [U][/U]