My husband and I will travel 7 days by car from Seville to Barcelona via the Coast. What cities or towns are a must see. Any recommendations of favorite hostels or hotels, restaurants, activities along the way (keeping a budget in mind)? Are reservations necessary? Any advice would be greatly appreciated!

I really like Xavea, just south of Denia in Alicante. I don't have a favorite place to stay, as we rent in Denia, but have seen some nice ones on the web. We will be staying nearby in Calpe this summer at a friend's house. I haven't been yet, but the pictures look beautiful.

I'm not sure at what point you plan on hitting the coast after you leave Sevilla, but if you haven't yet been, Granada is a logical stop before reaching the sea. Then you'll be in the province of Almeria. Check out the sweet (even if touriisty) little town of Mojacar. To the south the Cabo de Gata national park would make a nice detour.
Onwards north: Murcia is a useful provincial city and a pleasant place to stroll about and have lunch. Elche is also a nice stop. If you're spending the night there is a fancy hotel in the palm grove (Huerto del cura). I've never been but heard it's nice.
Valencia is a great city, don't miss it as is Tarragona where you can see lots of Roman bits and pieces.
Enjoy

Barry, glad to know you're a fellow Mojacar fan.
(always knew you had great taste...) :p