I've got 3-4 days to spend in the Matagalpa-Jinotega area. Should I use Matagalpa as a base for exploring the area and visit Jinotega on a day trip or should I spend time between the two cities? Any suggestions on lodging in either city or the area?

I think the lack of responses here tells you something about how many people on this forum head north off the tourist trail. That being said, I haven't been to Matagalpa in years, but it was a great town then and I think it would be a great base camp. However, I haven't been to Jinotega so can't tell you much about that! They are close, so you wouldn't waste much time on transportation doing a one day round trip.
Get (or loan from your library) a Moon guidebook for advice about the north.

I also took the lack of responses to mean not many people travel in that area. I may change my travel plans but it's good to know someone made it there! Thanks for the feedback.

I can see why not many people head to Matagalpa. I just got back from spending three days there and there wasn't much to do in the city itself but there are quite a few activities around the area. It was a welcome relief from the heat of Leon and Granada though.
I found a ridiculously cheap ticket for December so I will be heading back to Nica this year after all! Will be sure to report back about Matagalpa. In your trip report you said you used Matagalpa Tours...did you by any chance check out their pricing for multi-day hikes? Or did you inquire at Green Tours, apparently next door? I only saw that place mentioned once or twice (probably by the same poster) and the implication was it might be cheaper...

No, just inquired at Matagalpa Tours about day trips. It's a great organization, though,and their prices were reasonable. Have a great trip!
If you are looking for a multi day hike, I heard a lot of good things about Somoto Canyon. It sounds pretty cool and Quetzeltrekkers does a two or three day trip. There's also an outfit in Managua that does a three day tour but I forgot what the name of the tour company is.