I highly recommend a trip to the flea markets downtown. There is so much to see and experience. You have to be careful because there are two "fake" flea markets downtown on the Malecon...a local told us these were tourist traps. They are small market areas with a few nice shops, but can be a little pricey--the real flea market is at the very end of the Malecon at the base of a bridge in a two-story complex packed with stalls and merchandise.
These guys have everything for sale in Mexico. They have numerous types of carvings: wood, metal, statuettes, figurines, chess sets, and wall-hangings. They have uncountable glassware ranging from utility pieces to decorations and of course tequila/liquor serving sets and shot-glasses. We really did see a lot of very colorful sinks for cabinet installations--they would really liven up anyones powder room. They also had a lot of pottery and blankets and hammocks and leather goods and jewellry and souvenirs and who knows how much else I've forgotten.
We usually had good luck bartering with the locals but just like everywhere there was good salesman and poor salesman. We found that if you deal fairly and politely then you usually have good results. We noticed a couple rude customers and salesmen and we just avoided those areas.
Also, take a look around this area while you are here. We found a couple great shops here and a really good cafe in this area where we just relaxed and had a couple drinks to cool off and get re-vitalized.