Hello :-)
Depending on the places you want to squeeze into your itinerary, you could probably maximize the 7-day pass (as mentioned in your #2 question) I suggest going to Kyoto during the latter half of your trip so you could catch the cherry blossoms in full bloom. Mid-March is a bit early yet, based on previous year's trending, if you could move your trip about 1 week later it would be better I think. Tokyo is beautiful too in Hanami season :-)
Another option is budget domestic flights. I live in Tokyo but I haven't used the JR pass :-) When we visited Kyoto, we just took a JAL domestic flight out of Haneda airport to Osaka Kansai airport (JPY9.6k one-way) - this is the super sakitoku fare - deep discount if you buy 45 days earlier :-) Then we took a limousine bus to Kyoto station (JPY2.5k)
Overnight buses are cheaper but when my husband took one on a skiing trip, he didn't enjoy the experience ... he had trouble sleeping because they turned the lights on every 2 hours and the driver has to take a break (for safety reasons so as not to fall asleep on the wheel) The one he took was not for Kyoto though so it might be diff ... Personally I think the cost savings here do not outweigh the 8 hour travel :-)
Re: places to stay ... If the hotel is $100/night for two persons that is already a bargain and you should get it. considering you'll be traveling to Tokyo/Kyoto on a peak travel period. If it is $100 per person, you can also consider ryokans or capsule hotels - when I was looking for budget accommodations in Kyoto with ensuite bathrooms, this was the cheapest ones I found (but was fully booked already by the time I inquired - 1 month before our Autumn trip):
http://www.capsule-ryokan-kyoto.com/en/pages/price.htmlhttp://kshouse.jp/kyoto-e/rates/index.htmlWe ended up staying at a BnB with no private bath (but since it has only 3 rooms, waiting time wasn't a problem) ... breakfast is free though, plus we had expert travel advice from the owners (foreigners)
http://www.gotokandk.com/casa.htmlWe also considered staying at the temple lodgings at Shunkoin temple (w/ensuite bathroom):
http://www.shunkoin.com/direction.htmlBut considering the relatively low price of the above, expect it to be smaller than what you're used to and the soundproofing may not be the best :-)
Just book early, especially for Kyoto, as budget accommodations dwindle quite fast during peak seasons.
In Tokyo, my tip would be just to find a place near major subway/train exits (preferably 1-3 minutes access to subway) From experience, those claiming 5-10 min access usually take much longer to walk (or maybe I'm just a slow walker - but if you have large luggage it is a hassle :-)
http://www.hostelworld.com/search?search_keywords=Tokyo%2C+Japan&count...Ideally, you would want to stay near the city center but since the subway system is extensive and efficient, it doesn't really matter. My friends who visit usually stay around Ueno/Asakusa area and Shinagawa/Shinjuku ...but the latter area is busier.
Within Tokyo, visiting the major sites, I don't think you'd be spending more than JPY 1k a day per person in transpo costs ... most tourist spots are clustered in groups that are easily walkable. So I usually just get my visitors prepaid IC cards (SUICA/PASMO) for convenience in moving in and out of subways.
Here is a good walk map of the Tokyo area, which may help you decide where best to stay:
http://www.jnto.go.jp/eng/location/rtg/pdf/pg-305.pdfOther places are in the index: (Kanto and Kinki region are your interests)
http://www.jnto.go.jp/eng/location/rtg/Hope this helps :-)