It's a very nice town. I was there once. There's a bar on the edge of town (or was in 1976. I'm not sure if it's still there) called the Cafe Psychadlica. It was exactly the kind of place you might imagine from the name.
mandatory wikipedia link:
http://en.wikipedia.org/wiki/Panajachel
pic of beautiful Lake Atitlan. Panahachel is the town in the northeast: