I would either remove the old siding and install 1/2" ridged styrofoam insulation and then install the vinyl siding, or I would just go over the old siding if there is no rot.
Vinyl siding is "hung", not nailed. So small waves in the siding should not show.
"Upscale neighborhood", Make sure you use good quality siding and use the accessories. You might want to consider Certainteed's Cedar Impressions, for example and install Alcoa/Mastic's door surround and window mantels, Girardin's raised panel shutters add a nice touch. Make sure you use Mount Master light blocks, dryer vents, and mini mounts for electrical recepticals and hose spickets. You may want to think about using vinyl dental moulding along the front of the house?
There are many ways to dress up a house with vinyl products.
Go to http://www.vinylsiding.org/index.htm and look around.