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Mackinac Island is a great location to bike, but you need to be mindful of the many bikes, pedestrians, and horses and buggies -- almost none of which obey rules of the road. Bring your own bike for $8 round-trip on the ferry; otherwise you will have to rent a bike for too much money and may have difficulty negotiating the hills. If you rent a bike, be sure the bike has at least 7 gears for the hills, but most importantly, make sure it has fenders in the front and back. Without the fender, and especially if it rains, you will earn a "fudgie stripe", the locals term for the brown stripe strewn on your back from the dirt and horse debris from the road while biking.
One unique disadvantage to biking on Mackinac is the horse manure on every single street. If you can avoid that, and don't mind the smell, the first thing to do is the 8-mile mostly flat loop all the way around the island, with spectacular water views all the way around. Then, head uphill next to Fort Mackinac and get off the beaten track onto the gravel foot/horse trails, which take you through peaceful and quiet forests, and out to Arch Rock and the butterfly garden. Once again, spectacular views are available from the tops of the cliffs at every turn.
The downtown is one fudge and t-shirt shop after another with few stores offering unique island items. Even aside from the very expensive Grand Hotel, the hotels are expensive. Restaurants are more expensive than the mainland and span the gamut of fast and casual dining options to finer options with a good selection of typical American cuisine. There is a new art museum located off the marina showing The Art of Hospitality exhibit sponsored by the Grand Hotel in summer 2012. Most visitors are day trippers, but there is plenty to do for those interested in spending more time in the island.