The hotest vacation rental market, in my opinion, is downtown Yountville. It has the Valley's best collection of WALKABLE restaurants, wine tasting rooms, art galleries, etc. It's centrally located within the Valley and as of 2 minutes ago there are 17 residential properties for sale on the MLS, ranging in listing price from $339,000 to $849,000. Hotel rooms in town are unbelievably expensive. Even though we live 20 minutes away, my fiance took me to downtown Yountville for my birthday weekend and got the last room in town under $700 per night, and rates go up in the summer...
Downtown St. Helena and Napa have both gone through recent re-development (mostly Napa), but I'd advise looking at Yountville first.
With regards to property type, condos are obviously easier to maintain. But then you have to pay an HOA fee and condos can't accomodate large (read: "profitable") groups. My suggestion is a single family home or duplex within walking distance of downtown. The numbers just work better for an absentee owner.