Easiest to fly to Heho (from Yangon ~$75, from Mandalay ~$40) and then take a taxi from there. Taxis in front of the airport are expensive, but starting to walk down the road away from the airport helped drop the price significantly. Buses from Mandalay and Yangon are also available multiple times a day. If you're in Taunggyi a line-ka (modified pick-up truck used as a bus) is a viable option. It takes about an hour and is very cheap (K400 or less than $0.50US in 2005).
You can walk around town easily. Many bike rentals available for less than $1 per day, great for also touring the surroundings.
'''The Lake''' - a boat trip on the lake is a must do. Day tours are available for only the top half of the lake (~9000kyat) or including the south of the lake (recommended!) (~13000 kyat). Note that in comparison to other boat trips, this is very cheap - this is because the boat drivers get good commissions for anything you buy at the many shops you visit. If you want to spend more time on the lake and less time shopping, be sure to tell the boat driver clearly. There is a $3 entry fee per person to the lake, charged by the government.
'''Bike Ride''' - take a day to ride through surrounding villages. Just check your rental bike carefully before leaving - I had to pump the tyre twice, replace a pedal and fix the brakes on my bike.
'''Hike''' - day hikes in the surrounding hills, or 3 day hikes to Kalaw are available, and are highly recommended. Seek out Than The, a local guide who knows the area very well and comes highly recommended. Ask for him at Win's Massage business.