For our trip in December 2012/January 2013 (not a super busy time on the roads in Sicily, although I suspect travel numbers were increased somewhat because it was Christmastime), we rented from Europcar at the Palermo Airport. Although airport and train station car rental offices pass on the extra charges associated with those facilities, it was more convenient for us as we'd just gotten off the plane, and were heading west, not into Palermo. Do you ant a car before you get to Cefalu? That might influence your decision on when and where to rent. By the way, the rest of the passengers on our plane seemed to be Germans, and they all marched straight to the Sixt car rental desk at the airport, so you might want to compare prices on both Europcar & Sixt with those of Hertz/AAA.
We opted to waive all optional insurance coverage they offered, having checked on the coverage provided by our VISA card, as well as VISA's paperwork requirements. Had there been any damage, it would likely have involved a major paperwork nightmare, in addition to major inconvenience, but we saved on paying major fees for their coverage. I think they also ran our card as a "damage deposit," but didn't actually ring up a charge, just had the card on file as security.
Driving was a little challenging in hilltowns with super-narrow streets and tight parking spaces (rent the smallest vehicle you can get that will accommodate all your passengers and luggage), but highway driving in Sicily was a breeze.
Our only near-incident was near Sorrento, after we'd taken the car to mainland Italy by ferry a few days earlier, when a speeding kid passed another car in an intersection in a quiet residential area, just as we were pulling out to make a right turn. The kid, coming from our right, would've hit us head-on if I hadn't screamed when I saw the car and Scott hadn't slammed on the brakes (he was looking left, having already looked right, before the kid pulled his stunt). If there had been a collision, there might have been serious medical issues, in addition to automotive, police, and insurance issues. Thankfully, after giving the kid a honk as he sped thru the small intersection, that was the end of the situation (after our hearts stopped pounding), and no VISA-provided insurance needed to be invoked.
In hindsight, we didn't need to worry about having lots of excess insurance coverage, but it's always a gamble of how much do you pay for peace of mind, and that formula will be different for everyone. By the same regard, we never needed to show our International Driver's Permits (obtained thru AAA) to anyone, so we could've saved the $15 apiece (plus the cost of the 2 passport photos), but that was cheap, so we were glad we'd gotten those.
As with any car rental anywhere in the world, be sure to inspect the car before you drive off the first time, and be sure the rental company has noted any pre-existing damage. Our car was brand-new, less than 40 km on the odometer, but we went over it from bumper to bumper to ensure there were no dents or scratches before we left the Europcar lot.