There are two kinds of taxis in Cuzco and Lima: white station wagons and teeny tiny hatchbacks of varying colors. Take the small ones unless there are several of you with bags and need the space provided by the white station wagons.
When you arrive at the bus station, do not take a cab right from the station. Throw your pack on and walk off the premises and flag down the little hatchback. You'll get a much better price. It also doesn't hurt to haggle as you're walking out to get an idea of the price you'll want to pay the cab.
Here's an example. When I arrived in Lima today, I got off the bus, got my pack, and walked out the front door. Immediately, several men came up to me and asked if I needed a taxi. I said yes and asked how much it was. There was actually a board on the wall of the bus station stating the prices to various parts of town. The price to the neighborhood of Barranca in Lima was listed as thirteen Solis. I said no thanks and kept walking. As I past the taxistas, I heard "twelve," then "ten," "nine," and "eight." I kept declining. I got other bids for nine again, which was funny since one of them had already said eight. I kept walking, figuring that I'd find a miniature car outside the gates. One pulled up and dropped someone off. I showed him the address of the hostel (which I had written on a small piece of paper before leaving Cuzco) and he said eight. I insisted on seven and he finally caved.
Seven Solis down from thirteen? Listen and learn, kids.
One last tip? When you leave your hostel, ask the staff how much the taxi should cost you to different parts of town so you don't get ripped off. You won't know unless you ask.