It isn't really hard to do it. I have driven all over the country. The worse thing is the increasing police shakedowns and the banditos around the popular tourist destinations. If you go to Esteli, you provbably won't have any trouble at all and the roads are pretty good. It's around SJDS and Granada that is the problem. I always liked to have my own vehicle. It gives you flexibility. I just wanted to share with you the hardships of having a rental and the alternative of using taxis.

Most of us who are more or less regular contributors on the Nicaraguan forum have deep affection for this poor country and want others to have a good experience. Traveling in the second poorest country is the Western Hemisphere means there are ample opportunities for trying situations and having a more laid back attitude (which in NOT typically my style) is a healthier approach to Nicaragua. If you think that you will stress out every time you have to go through a police check point or having you driver's license taken by the police would "ruin" your vacation, then renting a car may not be worth it. If you would consider such experiences all just part of the adventure, then keep car rental as an option. As I stated, I use public bus, taxi and rental car regularly when in Nicaragua. One option is to just rent a car some of the time. For instance, when staying in Granada, maybe just rent a car for one long day and start out early one morning on a circle drive, stopping at the Masaya market, visit the Masaya Volcano Park, then take the "white town" Pueblos Blancos route south from Masaya, turning off for the view/lunch in Catarina, buying pottery in San Juan de Oriente and do the cloud forest hike around the top of Mombacho (park car at park entrance and take the back of the park truck up-check times) before finishing the circle drive back in Granada. Perhaps I crammed too much in that list for some tastes for one day but it is an idea.
For a two week visit, I do know if you have time to spend 3-4 day in the northcentral highlands. If you stay in Esteli (consider Cualitlan Hotel for best hotel- just off the Pan-American Highway close to el Cotran Sur- unfortunately some would say a bit far for walking to the center of town), rent a car for a couple days. Do an overnight drive to Matagalpa via Sebaco, take the old road out of Matagalpa towards Jinotega (in between the two cities, stay in the cloud forest at Hotel La Selva Negra, hike, etc.-see their website), continue on towards Jinotega with great views, from Jinotega cross directly back to Esteli on the relatively new (very isolated rural route but in my opinion safe) paved road. When based in Esteli, there are day trip options, especially if your Spainish is up to it. A two wheel drive vehicle is not good enough to try for Miraflor, but Somoto is certainly a possibility. A short way south of Esteli on the Panamerican just south of the village of Santa Cruz is a paved road to the west towards San Nicolas that is very scenic and one can just stay on the high plateau and not drop down into San Nicolas itself but do hikes from there on the south end of Cerro el Tisey near La Garnacha clear along the ridgeline looking over much of central Nicaragua. One can return the same way to Esteli or there is an unpaved connecting road directly through the pine forests back to Esteli via La Estanzuela, but all is depending upon the condition of the roadbed during dry season, your patience to drive slowly avoiding ruts and bigger rocks, etc. whether you might make it. The Cerrato family has a simple eco-lodge on el Tisey for dining or staying overnight. Ask to see the nearby painted rock sculptures (leave a tip) done by the alcoholic after his rough nights. There is a popular bathing pool under a small waterfall in La Estanzuela, but it can appear worn and with too much leftover Samana Santa trash during April. To visit, one parks near the road, passes through a gate and walks down a steep lane, paying a small fee at the top There is some risk of poor kids in one of the houses there taking unattended things. In Esteli, visit one of the many cigar factories which is basis of the local economy. Almost all the cigar operations are owned/run by ethnic Cubans and one of the best restaurants in Esteli is about a block or so south of the plaza with very good Cuban style sandwiches.
I rented cars on two earlier trips (2009 and 2010), both in dry season. I had no problems other than one shakedown between Managua and Grenada. Both times I visited the coast plus Grenada and Leon. The main roads were in fair shape, with potholes pretty common.
This year, in January, I took mini-buses to Granada and back for a day trip with a friend who was a first time visitor, and then a bus to Rivas. From there ferry to Ometepe and taxis on the island, The roads south of Managua were definitely in much better shape than 3 years ago.
In wet season, a 4x4 might be a good choice if you wanted to get off the main roads.