There are several motels and hotels where you can stay during the festival. I would suggest staying in somewher central like Kelowna so that you have easy access to all the events and activities.

Following links will be helpful:

http://www.bctravelguide.ca/search-bc-travel.aspx?cx=015627490279371538172%3Aiafjzcbt-ee&cof=FORID%3A9&q=Kelowna#940

http://www.bctravelguide.ca/kelowna.british.columbia.aspx

You can also choose to stay in B&B which are more cost effective. I know its tough to choose from among 70 wineries but following 5 are worth a try:

http://www.britishcolumbiatours.com/2008/03/top-5-wineries-in-the-okanagan/

http://www.britishcolumbiatours.com/2008/03/okanagan-spring-wine-festival/