First of all, thanks to barrym and jeff for the posts. With the helpful pointers that were given, I came to the conclusion that it just wasn't worth hiring a car. And I'm so glad we didn't!!
Our holiday went something as follows:
1. Arrived into Split airport around lunchtime. Bus for €5 to Split town centre. Met immediately off bus by lady with "sobes" sign offering a room within the old Diocletian Palace area for 300 kuna (approx. 7 kuna to the euro). Probably could have negotiated her down a bit but €20 pp seemed reasonable. Comfortable room.
2.Departed next day on 11am ferry to Hvar Town. One hour to get there. Tickets only about €10 each from memory. A guy approached us on the ferry about accommodation. Agreed on 250 Kuna per night for 4 nights. Ended up getting a little studio/apartment with a kitchen and balcony overlooking the sea. Great value at €18pppn. Lazed around Hvar, taking water taxis (€5 return to uninhabited islands where you can relax and sunbathe for the day), eating and soaking in the sun.
3.Took the Marco Polo ferry to Dubrovnik on the fifth day from Stari Grad. This was the tricky part. It was one of only a few sailings in the week from the island of Hvar to Dubrovnik and there was a huge crowd in Hvar town at 7.45am to catch the one public bus that would get us to Stari Grad (30 mins away) in time to catch the 9am ferry. There was a bit of a crush but the driver crammed almost everyone one on to the bus. It definitely conjured up pictures of people jammed on to clapped-out rust buckets with their livestock! We crawled all the way to Stari Grad. The few left over got taxis I think. 7 hour ferry trip to Dubrovnik. V pleasant.
4. Met off the ferry in Dubrovnik by a man with a sign and pictures of the accommodation he had on offer. 250 kuna per night for two nights. Ended up in a little house with two bedrooms and sattellite TV half way between the ferry and the old town. V nice!
5.Bus for €5 from Dubrovnik to the airport for onward flight.
So we had a fantastic holiday. The only real risk we took was around accommodation but I think the worst that could happen is that you wouldn't like what you get - there definitely didn't seem to be a shortage of rooms/apts. at very reasonable prices. Not having a car was no inconvenience at all. In fact, I would see it as a draw back for the following reasons:
1. Even as a foot passenger, it is v. hard to get information about ferry sailings, not least because the staff are eh.. abrupt at the best of times. It would have been a nightmare trying to find which sailings allowed cars, where to park, when to be there etc. I didn't check for definite, but it seemed to me that the actual sailing times did not correspond with the timetables on the internet. Also not all ferries take cars so you are limited in when you go and where you can go.
2. I think you would miss a lot going by car or, at the very least, it would be a hindrance. The distance between Split and Dubrovnik is not huge and I think boat/ferry is the best way to go to take in the beautiful coastline.
3. The sea front part of some of the towns is not accessible by car e.g. Hvar.
4. There is the extra cost obviously - I estimated at least €320 for the week including ferry trips. Also, the towns aren't so rustic as to not have parking metres!
Of course, someone who has actually hired a car there may disagree with me but those are my observations.
Croatia has its flaws as a destination (the service is ropey at times and the choice of food a little limited) but the sheer beauty of the coastline, the impressive architecture of the old towns and the gorgeous sunshine are factors that do more than enough to counteract such minor misgivings.