There's no need going to the expensive restaurants (which often only serve foreign food anyway), go to the restaurants that serve local food.
Be sure to try an alpaca steak. Don't forget a llama/alpaca is normally kept and used for its wool - so only old animals will be slaughtered. But cuy (guinea pig) is the absolute traditional holiday food of the region.
A must when visiting a market is to enjoy, in the cold season, "once frozen" cooked potatoes.
Food quality on the whole is good in Cuzco. Hygiene can however be rather lacking in places. Be wary of food like burgers - although cheap, this is not a local specialty.
If you are looking for traditional Peruvian food try lomo saltado (beef tips with tomatoes, onions, and spices, over a bed of french fries and rice), aji de gallina (chicken in a very good yellow sauce with olives and hard-boiled eggs) or Papa Rellena (stuffed potato with beef, olives, hard-boiled egg, vegetables and spices).
Also try eating at a Chifa. This is the Peruvian version of Chinese food. The neighborhood of Wanchaq has many Chifa restaurants.
Try Inca Kola, a bubble gum/tutti-frutti flavored soda. This drink outsells Coca-Cola in Peru; (though it's actually a subsidiary of the Coca-Cola company). Also, Chicha Morada is a Peruvian specialty. It's a spiced drink made out of purple corn.
The soups are amazing. Try Sopa de Zapallo (a type of pumpkin soup).