I am planning to spend the summer of 2011 in Great Britain, with a long side trip to Germany, where my wife's ancestors are from (mine are from County Antrim in Ireland). I thinking that we need to pick a "base" in Great Britain somewhere, rent a furnished flat and travel from there, using the train systems. Does that make sense to you experienced travelers? We are not poor, but we need to be sensible about it, too.
London makes a great base for exploring the south of England and Wales. I'd suggest having two bases at least if you want to see more of the UK- maybe Inverness Scotland. Here is a link to an article I wrote about basing in London and doing day trips by train
http://www.aaacarolinas.com/Magazine/2008/Jan-Feb/britain.htm?zip=28208&stateprov=nc&city=charlotte
We have been to the UK LOTS of times- feel free to private message me with questions.
Rail is pretty expensive in the UK. Even though cars and gas are much more expensive, it might work out well for you to rent a car or do a lease (especially a lease) once your out in the countryside.
I would take the suggestion above, and have several bases. There are lots of short term apartment rentals on sites like VRBO.com or even Craigslist under holiday rentals. You'll see the term "self-catering" pop up a lot.
As far as which cities - well, depends on what you want to see... I'd definitely start with a few days in London (without the car), and then go exploring.
Sounds like great fun. Hope you have a blast!