I live in Panama City. Most of the damage was from Fort Walton and westward to Mobile. Pensacola really got hit hard. So did Mobile. Destin and Panama City didn't get quite as much damage.
I've driven to P'cola a few times to visit family, and you can still see some damage as you go through Destin, but it is being repaired.
Destin would be a nice place to stay, but so is PC. If you are interested in Panama City, try Holiday Inn on the Gulf or Edgewater Beach Resort. Both are nice places. There are many others for that matter.