Although I won’t be able to answer (I lived in Rio for only a year, and a looong time ago), I think you need to answer these questions to get the answers that are most suitable to you.

1) What’s your budget?

2) Do you want to be in-the-middle-of-it-all during Caranaval, or would you rather be somewhere more laid back (i.e. some town outside of Rio) and then make a couple day trips to see the festivities?

One thing: Rio is IN the beach. Any of the best neighborhoods are on the beach, so unless you plan on staying outside of Rio in one of the neighboring towns, you would be in the city AND in the beach simutaneously.

I highly, highly recommend these people: http://www.rioholiday.com/Rio-Holiday-Experience.htm

The owner is American and the beach houses they rent are amazing and within an hour’s ride to Rio. They provide transportation and a translator. Very nice people. We stayed in one of their houses in fall of ‘07 and it was one of the most incredible vacations of my life. We were totally taken care of. If they are booked up, I’m sure they could steer you in the right direction of where to stay and how to get around. I can’t say enough good things about these people. And they were not expensive at all. Everybody on the trip felt like the whole experience was a huge bargain. And everyone agreed that if we ever went back, we would use these same people again!

Rio is a pretty big place and I do recommend that you use North American based agencies instead of local ones. I would suggest staying in Rio as that’s where the main carnival parade takes place ( a must see) and perhaps do some 1 or 2 day trips do nearby cities.

Don’t hesitate in asking if I can be of further assistance.