As I visited only for a week, I am in no position to judge the Azores as a destination. Still, I have to say that I'd rather go back to Madeira for the third time than return to the Azores.
If you're planning on spending your vacation hiking, São Miguel can be a good choice. Early in the morning there are buses to every corner of the island from the main town, Ponta Delgada. Walk around there and return on the afternoon bus, or simply walk back to Ponta Delgada. The island is small enough that if you're a keen hiker, you can do that. Bring food for the whole day, as there are not many shops in the rural parts of the island.
Although São Miguel keep tempting you to walk around everywhere, you'll be better off staying on the country roads. There are few fences to see, but that's just because the Azoreans have perfected the art of planting thorny bushes to separate between the different meadows that the lucky local cows graze upon. I used all the band-aids I brought, to put it that way.
Apart from that, it was a nice trip! See photos for further comments. #8D)