We'll be staying a few days in Lisbon, then renting a car to drive to Algarve. The question has come up whether it might be better to take a cab to the airport and rent our car there. The logic being that I can avoid driving in the city (is that a problem?). I think the cab costs about €20 and have been told that there should be a greated selection of cars at the airport. Any ideas on this? Thanks.
Driving in Lisbon is basically like driving in any large city. If you're comfortable driving in a large US city, it shouldn't pose a problem. Remember that rentals are generally more expensive at airports than city locations. Using a site like AutoEurope could show you differences in prices as well as model selections and locations of city offices. Also, you wouldn't have to drag your luggage to the airport.
As long as you are using a gps or your smartphone with a map app, then it will be OK to rent in the city. Just get on the highway asap and out of Lisbon towards the Algarve. Lisbon is not driver friendly!