My husband and I visited in August 2010. I'd been to Traverse City as a child and wanted to see if it was as beautiful as I remembered.
The good news is yes, the surrounding area is great. The Sleeping Bear Dunes in particular are amazing, along with their nearby beaches.
Some caveats: just about any "beachfront" cottage that isn't actually located on the western shore of Lake Michigan is going to be situated on a small lake or one of the bays of Traverse City, and the water just isn't swimmable. The bottom is very silty and beneath the slimy silt are lots and lots of rocks, some with jagged edges. If you're looking for a waterfront cottage to enjoy gorgeous views, then go ahead, but if you actually want to be able to swim at a moment's notice, you need to rent something west of Traverse City on Lake Michigan proper, or be prepared to drive to a proper beach.
Forget about getting a decent cup of coffee. They pride themselves on their local roast but it is quite tasteless and watery. Other than that we had good dining experiences. As always, the fresh local perch is to die for!
Sadly, the townsfolk have bought into the hype and gotten a tad snooty. Their sole Irish pub is cold and dark and below ground and they don't do a good job of pouring Guinness.
The various lighthouses are well worth visiting and the schooner sail is fun - very nice crew.
In short, if I returned again, I would rent something on the Michigan shore and visit the town from there.