Prizren, along with Peja, is considered one of the most politically-charged cities in Kosovo. During 2004 ethnic riots, many Serbian houses in the city were burnt to the ground (remains of these houses can be seen on the hillside near the old town). Given it's reputation for being at the center of rebellion, I would suggest stearing clear of Prizren during periods of controversy.
Otherwise, Prizren is a GREAT city and should be enjoyed by all who visit Kosovo!
Kosovo is divided into military zones, each managed by a different country. When I was there Prizren was in the German sector and, as you would expect, curfew was strictly enforced. On the streets after 11pm? You will spend the night in the slammer. No ifs or buts. The German squaddies (think Robocop meets Baron Von Trapp) are not interested in your excuses. And cigarettes, the universal soldier pacifier, just won't work with these guys.
A group of Slovaks in my hotel developed a great game of cat-and-mouse. Sitting out in front of the building at a quarter to eleven, playing the guitar and bundling in-doors just as the patrols turned the corner.
Apparently, curfew regulations in the French sector (around Mitrovica) and British zone (Pristina) were loosely enforced. Avoid areas patrolled by the Russians like the plague: they are renowned for going drunk-driving in their APCs.
There did not appear to be much crime in the town, at least the place did not feel threatening. In case of bother, there are German (and Turkish) soldiers everywhere as well as the UN police (called coca-colas due to their red and white Land Cruisers) and the recently formed Kosovo Police.
The one thing that does (or should) get drummed into you is the danger of unexploded ordinance (or UXOs in military-speak). As beautiful as it may seem, don't go walking in the hills, sneak into the bushes for a pee or attempt to go skiing on the slopes between Prizren and the Macedonian border. Stick to paved roads at all times. There are countless landmines and cluster bombs still littering the countryside.
Kosovo's war is incredibly recent history and although most people you will meet in Prizren are friendly, don't push your luck by engaging in deep political discussions about the Kosovo situation or take sides with one group or another. Feelings of hatred, grief, sadness, revenge are still very present and lurk just beneath the surface. Don't scratch that surface. To be on the safe side, address everyone in English (or German, which is widely spoken) - don't try out your Albanian or Serbian, you might get an offended reaction. Or worse.