Re the ATM thing - I've never had an ATM fail to read my card, but that's because I applied for a credit card that was linked with Citibank and Visa (which incidentally saw no transaction fees for me whilst I was in Japan). I recommend that for those who still have time to shop around, try to get a travel credit card without overseas fees and lists Japan as a country that the card can be used in. Even if the 7-11/Lawsons ATMs fail, the Citibank one won't (although I never had trouble with 7-11). I know in Australia that 28degrees is a very popular card, but I'm not sure if that's global. Either way, it's a nice method to ensure that I wasn't carrying around loads of cash. Make no mistake though, a lot of the shops are small, and hence won't accept cards. It's still predominately a cash economy, especially for tourists.
I was there for a month and stayed in hostels during my time there. Websites like hostelworld and the like are pretty good if you're planning on "roughing" it and sharing rooms as you can book in advance on the internet and so forth. Again, they prefer cash, although a few places will offer card facilities if pushed (you may have to pay a surcharge).
As for the whole foreigner thing, it really does depend on your appearance (as bad as it sounds) if you're there for a short period of time and don't know the language well or at all. My friend, who went a year before me, had a completely different experience to what I had. Being caucasian really helped him make friends and start conversations with native Japanese people whilst travelling was a lot lonelier for me (I'm of Asian descent, so I looked native). Whilst I'm sure I would've had a different experience if I was fluent/stayed longer, do expect to get treated differently (usually better) based on how you look (at least initially). Travelling with a friend is always good, but that's obviously not always possible.
Lastly, don't expect anything. As weird as that sounds, it always good to go in without preconceptions. That way, you're able to absorb the culture without thinking "this wasn't what I thought it would be like" and being hung up over discrepancies.