The benefit of going through Varadero is that the prices are cheap for roundtrip air from a Canadian hub.

Last time I went, we flew into Varadero, spent a day or two getting buzzed on the beach, went to Havana for the rest of the week.

In Havana, many people rent out 1 or 2 bedroom apartments to tourists. It can be a great experience - living in a faded colonial mansion - although it helps a lot if you speak Spanish, since not everyone speaks English.

Here's a link to a site that allows Cubans to post their accomodations Casa Particular. Here's a 2 BR apartment with AC and hot water for $50/night Casa Alex

One problem with the hotels, is that the food is not terribly good (think prison food with fresh fruit, even in super-luxe hotels). Better food is found in Paladars - semi-underground restaurants people set up inside their houses and apartments (the better ones are very busy and reservations are necessary).