dipstick, I had a similar conversation with a friend last week about buying property in Portugal. She was looking at some hillside ruins (described on a website as picturesque stone houses), which basically the Portuguese wouldn't touch with a bargepole...
My advice: yes the thought of the countryside is nice but small villages can be isolated, boring and sometimes poor. On the other hand, stay well clear of the Algarve if you'd like to avoid large numbers of British ex-pats.
A decent-sized town further north, away from the biggest cities, is probably a good compromise IMO. Lisbon and Porto are interesting but big places, although the outskirts might be ok. You then have a number of smaller places - Coimbra in the center has a big university, very good hospitals etc. but is quite small and has a medieval centre. There's Evora, Leiria, Figueira da Foz on the coast, etc. The further up north you go the cooler it gets.
Give us a shout if you'd like to rent for a few months around the centre of the country (oh yes what did I just say about renting? :-)
You can use http://www.livemocha.com to learn basic Portuguese for free (including pronounciation). Just make sure you choose Portuguese from Portugal, not Brazil.