Definitely stay in Oia - it's a beautiful town and a lot quieter than the Fira (I think that's how it's spelled)! And it's very easy to get anywhere in Santorini, so that won't be a problem. If you are willing to spend a bit, you will be wowed by the views from the hotels that are right in the main part of town. If you are looking for a budget-type place, there are a few to be found on the other side. We went for a budget place and paid the equivalent of $15 per night (this was pre-Euro). It was about a 3-5 minute walk from the main part of Oia and was decent (but not posh). I'm so jealous that you get to go to Santorini! I think that might be the most beautiful place I've ever been and I've been to about 15 countries.
Santorini is probably - along with Barbados - one of my favourite islands.
If you get a chance, catch the bus to one of the volcanic beaches, such as Perissa. If you are there in the height of summer - prepare to bake!