Hi Paul,
I have been to Panna and Khajuraho recently and I can assure you that upto Khajuraho, the road is in very good condition, i.e. if you are planning to go via Panna. After you take a right turn after crossing the Rewa bypass towards Satna, you will encounter sparse traffic and after satna you will be greeted by beautiful scenery all around. After Khajuraho, which is in Chhatarpur district, i have no idea about the roads.
The Rewa-Maihar-Jabalpur road is also in good condition.Occasional pot holes, but otherwise in good condition. The only place the road is slightly bad is after you climb the Suhagi Pahadi uptil Mangwan where you meet the NH7 and then it is good.
Whether you go via Panna or via Rewa, you will have to encounter this stretch, which is about 10-12 kms only. Earlier, i.e. in December 2008, this stretch was a nightmare and could take about 1-2 hours to drive through. But it is not that bad now. You can do it in 20-30 minutes which is ok. If you are living in our Good old Allahabad, then you'll find even this stretch better than most of the roads of Allahabad city. I would suggest this Route over the other two. The road is largely in good condition.
I will not advise you taking the Banda-Mahoba-Chitrakut road as it is not very safe ( you have to go through some of the most dreaded areas of U.P.) and the Banda-Mahoba stretch is in tatters. But scenic beauty is in abundance.
On all the roads, once you leave Allahabad district and enter M.P.,Traffic is sparse with only occasional heavy vehicles plying.
And also, on none of the roads, you will find any good resorts or hotels unless you enter some of the Cities. There is just one good restaurant for a tea break just before the Rewa bypass- Astha Resort, on the right side of the road if you are driving from the Allahabad side. If you miss this one, then you'll get the next good restaurant only when you reach Maihar.
Hope this helps you and I will be eagerly waiting for your travelogue as i also plan to visit Panchmarhi soon .