Hi Tyron,
Since you'll be traveling after the summer holidays you'll find rates a bit better. your not listing your cities so I'd say in general you should be able to find accomodations while there but that will also eat away at your time during the day searching for "decent" accomodations.
Anytime your on a budget it takes more work to save money. I've found I like to do most of the preplanning and booking of key spots that I know I'll be. Then keep some days open and/or flexible. For budget accomodations we use
HostelBooker booked in advance.
I agree with Richard in saying to book the Inca Trail in advance since its a very popular destination
Yes pay local currency if your staying in budget accomodations.
Be prepared for extra time in traveling when using trains and buses. Plan as much as you can in advance and then just take the rest as it comes. Sounds like your on a great adventure enjoy your time and write back if you have more questions.
We would welcome a trip report if you care to write back.
Cheers,
Dan