Necessary Precautions

I don't want to sound like too much of a Pollyanna. Things can go wrong with vacation rentals, just as they can with any form of lodging. But I think if you take the following precautions and ask the questions I suggest in "Questions to Ask" you're less likely to run into any snafus.

Purchase insurance: Cancellation policies on rentals are much more draconian than most hotel cancellation policies and usually you'll lose your entire deposit (or the cost of the rental) if you have to back out, no matter what the reason. Buying trip cancellation insurance is therefore a must, and should be factored in to the overall cost of your vacation.
Start your search earlier rather than later: That perfect hotel will likely have 100 or more rooms for you to try and snag. Really great vacation homes are one to a customer, and often get booked up well in advance. For high season rentals, you may have to book a full 6 months to a year in advance (it will vary by destination) to get the rental of your dreams.
Do your due diligence: Because by their very nature rental homes don't get the same kind of traffic that hotels do, you likely won't find individual ones reviewed in guidebooks and internet info may be limited. Instead, you need to become a detective, carefully studying photographs, asking questions and getting references from past renters. If you can, send out a scout before you rent a home, just to look it (and a few other options) over before you commit.