We stayed at DG and did go into Udaipur for a second half day. Arranged it with our own driver, but there were also plenty of drivers at DG. We had a nice dinner at Ambrai at the Amet Haveli in Udaipur - magical position on the lake at night, but would be good for lunch/cocktails as well.

You don't have to go to a luxury hotel to have a wonderful meal with a fabulous view of the lake. Check out Jagat Niwas, Jaiwana Haveli and Ambrai. Ambrai is on the lake opposite from the city and the views of Lake Palace and City Palace are stunning...

I think you need 2 days of going into Udaipur. City Palace is huge and if you want to do a lake tour by boat, it leaves from there.

See my trip report here:
http://www.fodors.com/community/asia/craig-jeane-2010-trip-report-varanasi-udaipur-aurangabad-bangkok.cfm

i agree with craig... we also drove outside the city for most of a day too..

we loved ambrai, but we also enjoyed his other 2 suggestions as well.

We ate at both ambrais and Jagat niwas and enjoyed the later more, although both meals were excellent.

Taj Lake Palace is amazing. Its ranks in top 50 accommodation stays in the world. They have a very unique way of restaurant, which is a 9x9 platform, middle in a lake & food comes to you on a boat.

Regards
Jatin
Myguesthouse

If you want a lake side table, a reservation is a good idea for dinner. Your hotel can do this for you. At bother Ambrias and JN there was a line, so our reservation was a good idea. depends on the time of the year. Magical city.

We also enjoyed Jagat Niwas. the rooftop restaurant is so lovely and the food was excellent! We arrived mid afternoon and were able to go on the Lake cruise, which we found relaxing. the next day, we saw the gardens ,the City Palace and the Temple prior to leaving late that afternoon. I felt that we were able to enjoy Udaipur in an unhurried way, but we didn't explore outside the city.

To the OP - we have a trip to South India arranged with India Panorama in October so will be interested in how your trip goes!