Peru is a wonderful country and I have greatly enjoyed my time there. Traveling from city to city is almost always best done by air. Buses are available, and can be quite an adventure sometimes, but they are certainly a great way to get around, particularly if you are looking for a better look at how the country really lives.
It kind of depends on what you are interested in doing. Doing the tourist thing in Lima, and the surrounding area, can very easily eat up all of 7 days, as well as much, much more. At a bare minimum I strongly recommend a tour of the center of Lima at the very least because you will get a small taste of the Lima of the Spanish era, including Churches and Monastaries. Plan to spend at least a day doing this alone.
Obviously you can also spend at least a day touring Cuzco and another day around Macchu Picchu. You can also take the Inca trail and walk from Cuzco, through the Gate of the Sun, and into Macchu Picchu. Of course this will take longer than a day or two and is only recommended for people with hearty constitutions. Not only is it mountain hiking, but you are quite high as well. These are all traditional tourist attractions, but they are certainly wonderful in their own right. You will certainly not be disappointed if you have never traveled to Peru before.
Other attractions include the city of Huarez in the Andes, and old fashioned high mountain hiking in the high mountains. Huarez is actually one of the few places overseas where my wife and I have been tempted to move and live. It is an absolutely beautiful part of Peru and the people are wonderful. Another great attraction, but lesser known, are the ruins of Chavin. These ruins come from a civilization much, much older than the Incas and gives you a different perspective of just how old civilization really is in these Andes Mountains. Getting there is not as easy as some of the most common areas, and I do recommend that you rent a car and driver for the trip, but it is certainly worth the ride.
As for travel issues, travelers diarreha is certainly common, and is easily traced to using the water, or eating anything that has been washed in the water. Always use bottled water, for drinking, brushing teeth, even washing your hands sometimes. If you travel into the mountains you must also consider high elevations and the stress that will place on your body. Lots of the Peruvians regularly live and work at elevations that do not even exist in the United States. But, having said all that, Peru has relatively reliable medical facilities in most of the common areas that people travel, so treatment is available if you encounter problems during your trip.
I could easily go on and on but you are probably best working with an in-country travel company to establish your itinerary. However, you can be sure that it will be a memorable trip no matter what you chose to do. Enjoy.