This little town used to be of not much importance and really, there is not much to do, except use it as a base for you Inle Lake visit. The lake sits in a valley surrounded by many ethnic villages and breathes in and out with seasons. Almost doubles in size during wet season and remains still vast but shallow during dry season.
Inle is a popular destination for trekking the villages and for the many handmade crafts coming from small family workshops. In the past couple of years however, these small workshops have often changed to small factories often resembling sweatshops and the whole Inle Lake boat tour resembles a shopping mall on water. I may be a little harsh but is definitely going the wrong way. Apart from the mandatory boat trip, hiring a bicycle and pedalling around the lake is an excellent idea. Nyaungshwe itself has a few temples and 3 monasteries that are worth a visit and also a puppet show that's quite basic but inexpensive. Hotels, guest houses and restaurants sprung up like mushrooms after rain, but the food is yet to be westernised. Although 'pizza' is available, I did find out from first hand how many things can go wrong with simple Italian meals. Am I being punished for craving the western world when so much nice local food is available?!
All in all Inle Lake, Nyaungshwe or Kalaw are equally excellent destinations. My rant is more in line with my concern about this surreal setting losing its magic to mass tourism. We've seen this happening before and it would be a shame as the place has so much to offer, as long is not just another generic resort.