I find your comment about trains between Lisbon and the Algarve - "there no none when I was last there" strange as the railway line between the two was built in the 1880's and has carried at least 4 passenger trains a day between the two over the past 15 years.
I have published an extract of the current train timetable between Lisbon and Faro here:
See: http://amplify.com/u/ehhy
I have published an extract of the current Algarve Line weekday train timetable here:
http://amplify.com/u/ehi6
If you want to explore the region between Lisbon and the Algarve the only real way to do it is by car. The train trip is great and you will see some great countryside but you will not see the whole expanse of the region.
As regards staying in the Algarve and travelling to Spain, it is likely the electronically collected tolls will be introduced on the Algarve Arterial Motorway before May 2010. It is not clear yet how these are to be collected from visitors as there will be no toll booths. However, it will add to the cost of travelling into Spain.
The car hire company in the Algarve I would normally recommend is Luzcar. You can find their offers here:
http://www.lagoscarhire.com/
The problem is that they are based in Lagos in the Western end of the Algarve, (end of the Algarve Rail line). Remember to specify an automatic if you are not comfortable with manual shift. You will pay a premium however. Most European hire cars are manual shift.
However, Lagos is one of the nicest towns in the Algarve with great beaches and with the opportunity to also explore the region towards Sagres and Cape St. Vincent, the most south-westerly point of Europe.
If you intend taking a hire car in Lisbon or the Algarve and delivering it back to Lisbon, I recommend Auto Jardim - see: http://www.autocarhire.net.
Remember in all cases to stipulate that you want to take the car to Spain. There should be no problem, but it may be necessary to pay a small extra charge.
As regards hotels, have a look at the Vila Galé, Meia Praia, Lagos, the Yellow Hotel, Lagos, the Vila Galé Tavira near Tavira and the Martinhal Resort Hotel in Sagres.
