Yeah, Metro will be your friend, even though it's likely to be crowded. As for where to stay, what are you looking for? Your main choices are:

Virginia: Vienna, Falls Church
Maryland: Rockville, Bethesda

Of these options, I'd probably pick Bethesda. It has a nice walkable downtown area of its own and is the closest to DC of the bunch. I've stayed in the Hyatt there, which is right on top of a metro stop. Looks like rates for the July 4th weekend are in the low $100s per night.

http://www.bethesda.hyatt.com/hyatt/hotels/index.jsp