I am designing a REST service and am trying to weight the pros and cons of using the full array of http verbs and content negotiation vs GET string variables. Does my choice affect cacheability? Neither solution may be right for every area.
Which is best for the crud and queries (e.g. ?action=PUT)?
Which is best for api version picking (e.g. ?version=1.0)?
Which is best for return data type(e.g. ?type=json)?
CRUD/Queries are best represented with HTTP verbs. A create and update is usually a PUT or POST. A retrieve would be a GET. Deletes would be a DELETE. Thats the generally mapping. The main point is that a GET doesn't cause side effects, and that the verbs do what you'd expect them to do.
Putting the action in the URI is OK if thats the -only- way to pass it (e.g, the http client library doesn't allow you to send non-GET/POST requests). Most libraries do, though, so its strongly advised not to pass the verb via the URL.
The "best" way to version the API would be using HTTP headers on a per-request basis; this lets clients upgrade/downgrade specific requests instead of every single one. Of course, that granularity of versioning needs to be baked in at the start and could severely complicate the server-side code. Most people just use the URL used the access the servers. A longer explanation is in a blog post by Peter Williams, "Versioning Rest Web Services"
There is no best return data type; it depends on your app. JSON might be easier for Ajax websites, whereas XML might be easier for complicated structures you want to query with Xpath. Protocol Buffers are a third option. Its also debated whether its better to put the return protocol is best specified in the URL or in the HTTP headers.
For the most part, headers will have the largest affect on caching, since proxies are suppose to respect them when told, as are user agents (obviously UA's behave differently, though). Caching based on URL alone is very dependent on the layers. Some user agents don't cache anything with a query string (Safari, iirc), and proxies are free to cache or not cache as they feel appropriate.