check this
http://www.afar.com/questions/heading-to-oaxaca-mexico-at-the-end-of-october-to-shoot-the-day-of-the-dead

this was my reply

this what i did on that day some years ago i went to the town of Xoxotitlan that is about 45 to 30 minutes away from the capital on the day of the death.

in Xoxotitlan there are 2 pantheons old and new, make sure to visit both, then walk around the main street of the town you will find a lot of places to eat and hang around

things that you need to taste
- Quesadillas (there are many flavors and my favorite)
- Tlayuda
- Tasajo
- sopa de guias (soup, my wife kills for this one)
- Tostada de Salchicha (oh my god i love this one)

to drink
- Negra Modelo (dark Beer)
- Montejo (blonde Beer)
- Leon (brown beer, also made in oaxaca)
non alchoholic
- Cafe de olla (my favorite and do not add sugar)
- chocolate de agua (oaxaca style but i prefer the one made with Milk)

there is or maybe was a smal "feria" next to the new pantheon you can walk it and see the people enjoying this day

if you are lucky some people on the new patheon might invite you to have some drinks and dance, also another thing that you can do is in the city of oaxaca go to the Panteon Central i loved this for taking pictures

i think that's it

Posted Oct 10, 2012

Heidi, yes, I've been to Oaxaca for the Day of the Dead. It's a great time to visit there... please email me at marceinsele@gmail.com if you want to discuss in further detail. marc

Posted Oct 11, 2012

I live here in Oaxaca. The markets go everyday - except Christmas and New Years Day. There is a town, San Antoninio, that is now part of Ocotlan it's so close - and they celebrate on Nov 3rd. So it may not be as big as the week before but it will be great.

Posted Oct 16, 2012