There's tons to do in toronto. It's a typical big city, but it seems like there's less crime. Check out broadway shows, chinatown or shop on young st or the Eaton Centre.
As for renting cars in the states and taking them to Canada, you can do it, but you'll probably have to pay extra on the car for insurance. If you rent it on a credit card, you may want to call your CC company and see how their coverage area works. When I've gone over in a rental, though, I never bothered to do any of this. I just told the rental car place I was staying in New York State so I wouldnt have to pay extra.
Just make sure you have ID when you go over the border. You *may* want to dig up a copy of your birth certificate. I've never been asked for mine, but I know some people who have.
Just a tip: When you pull up to the customs officer - put your car in park. Some people just use their brakes and they *hate* that. One of my friend's fathers works at the border patrol and he'll make people go into the office if they do that some times.