There are quite a few things that are cheap in Ecuador and transportation is one of them, if you know how to do it right. To planes, renting a car, trains, taxis and buses there are many options to get to where you want to go. I will go through each option and explain the advantages and disadvantages for transportation in Ecuador.
If time is not on your side and you wish to get to place to place fast, flying is the way to go. Though expect money to go fast as well. From just Quito to Manta (coast) will cost $100 per person, so money disappears a lot faster if you chose to fly from place to place. If you're visiting for only a week flying maybe your only option to save on time. Though there are many hubs to fly in and out of in Ecuador there are other forms of traveling within the country that are much cheaper.
Renting A Car:
"What's worst, flying and spending the money to do so or renting a car and having to pay for gas as well?" Renting a car in Quito or Guayaquil isn't a cheap option if you're trying to travel around Ecuador on a budget. At around $200-300 + mileage + gas this can add up quickly. I rented a Chevy Spark (one of the cheapest cars to rent) in Quito, though the gas lasted forever there wasn't quite a spark in the Chevy Sparks. Cars are pretty gutless in Ecuador (at least the cheap rental ones) but the Spark got me from point A to point B without much problems. Gas prices compared to America are night and day. In Oregon (where I live, but I know more expensive in other states) it is close to $5 a gallon, in Ecuador right now it is $2 a gallon for gas and $1 for diesel. The price for gasoline and diesel is far better than in America and other countries as well. This mode of transit has its advantages, for one you don't have to be on anyone else's schedule but your own. You can decide where and when you want to go. Figuring out directions is half the battle and learning to drive with Ecuadorians is the other half. Though I found it fun, others may categorize it as down right dangerous. But if exploring the surrounding towns is what you want to do a car is a great why to see everything, that is if you don't get lost… and I promise you that you are bound to get lost, many many times.
Don't travel by train. One would think it would be a great way to see neighboring towns and country side, which it is… if you're a mega tourist. The train in Ecuador is a tourist trap. Beckoning at your every need, comfy big chairs and of course stopping at various locations to watch half ass dancing by locals who you know have no heart behind what they are doing and at the same time you are being cattled in to buy expensive food and cheap souvenirs. Before 2007 it was allowed in Ecuador to actually ride "on top" of the trains (awesome!) , but do to a fatality this has been banned in the country (not so awesome). If this sounds great to you it's $25 for two hours, but if you truly want to travel and be in the real Ecuador there are better and cheaper ways of doing so.
One would think a taxi is for short-term rides, 20 mins there maybe 30 mins here. But I have ridden in a taxi for as long as 2 hours from Riobamba to Alausi. If you have the money they will take you and with gutless taxis the ride could take longer up steep terrain as the taxi tries to weave in and out through even slower vehicles. The advantages of using a taxi as transportation is that there are lots and that this mode of transportation is direct, no stops or interruptions. You can sit back enjoy the ride, work on your Spanish with the driver and not have to worry about getting lost. The disadvantage is or could be price. If the drive knows you're a Gringo (foreigner) prepare to pay at least twice as much as the locals would. You can negotiate price but you will still never get anywhere close to how cheap a local may pay, perhaps if a local is riding with you but with a Gringo present it means there is money to be taken. Taxi drivers know this and ups the price, it's no big surprise.
Caution: "Taxis" have been known to be dangerous. You are safest with yellow taxis that have license plates. There should be also some form of indication that it is a real taxi inside the vehicle. Some Ecuadorians have been known to use their own cars as a taxi service to try to generate their own money. Express kidnapping is also present in Ecuador, so make sure the taxi you are getting into is legit. Always better to be too safe than sorry later.
Buses are everywhere in Ecuador from local intercity buses to long distance buses. I have done both… a lot. For intercity travel around town it is only $0.25 and for longer distance travel it is only $1.90 for 3 hours. Shorter trips are cheaper and prices and bus times are posted at the terminals. I was on a bus for 5 hours this past weekend at it only cost $3.35. This is my favorite form of transportation within Ecuador for obvious reasons. Though intercity buses do get extremely crowded during weekday morning and traffic can be down right horrible, but if you are not in a rush for $0.25 you can deal with it. The longer distance buses are surprisingly clean and accommodating. Some buses even have a movie playing (Spanish of course) in front of the bus for entertainment, but you're lucky if the movie doesn't skip or just stop all together. In a couple of weeks I'm going to Cuenca to visit friends, a 8 hour or so ride but for less than ten dollars… that beats flying for $100+. The disadvantages have its advantages as well. Hours on a bus is no fun but at the same time you see a lot. You see the countryside and small towns you never would have seen otherwise. The bus isn't express, meaning if it can make stops to pick up people it will. But at the same time vendors/salesmen and saleswoman come on the bus to try to all sorts of food. So going hungry on your journey isn't a problem. By bus is the way most locals travel throughout the country so bus stations can be hectic but I have never had any problems getting a ride. This is by far the cheapest form of transportation and best deal for your money.