How about Brighton, UK?

It's pretty small (around 250k people).

It's by the sea.

It's pretty hilly (For England)

It's an hour from London.

It's very hacker friendly - we have:

2 Universities:

http://www.brighton.ac.uk

http://www.sussex.ac.uk

A thriving geek/entrepreneur community:

http://www.brightongirlgeekdinners.co.uk/

http://www.brightoncodingdojo.co.uk/

http://fivepoundapp.com/meetup/10/

http://www.opencoffeesussex.com/ (Sometimes open beer and open juice meetups too)

http://brighton-ruby.org/

http://www.brightonfarm.com/ (Freelancers meetup)

http://upcoming.yahoo.com/event/419779/ (Geek Wine Thing)

http://www.businessbricks.co.uk/

Great places to work either in startups or as freelancers:

http://www.sinc.co.uk/ (Sussex Innovation Centre)

http://www.werkshop.org.uk/

http://www.brightonnewmedia.com/

Great events:

http://www.barcampbrighton.org/

http://2008.dconstruct.org/

http://widgetygoodness.com/

Some big companies too:

http://upcoming.yahoo.com/event/401666/ (Linden Labs)

Plus a couple of games companies - Climax, NCSoft http://blogs.guardian.co.uk/digitalcontent/2007/11/club_peng...

Plus it's a really relaxed and friendly place to be, more pubs/bars than days in the year (really) and the famous North and South Laines shopping areas for people who don't really enjoy the mall. Oh and some people call it BrightonCisco (http://presencelabs.com/2007/03/07/brightoncisco/).

There are many other reasons to be here and I'm sorry to any one if i've missed something really important out.

Kev