quote:
is it any worse there than it would be anywhere else?

Yes. The main tourist area is pretty well-policed during the day, but you should definitely ask your hostel questions about what neighborhoods to avoid. At night, all of Cuzco gets a little dodgy. I was told to take a taxi no matter what. Strangle muggings do happen, even in the touristy neighborhoods. My hostel also gave me very specific instructions about what to look for in a cab and recommended that I ask a restaurant owner or shop keeper to help me flag down one that looks legit. There is a bit of a problem with fake taxis that rob tourists.

I think Cusco is fine. Most things of interest are within walking distance from the main square, so I never had any need to take taxis anywhere within the city. At night, there is pretty cool night club "Mama America" on one of the corners of the main square — very international crowd.