I spent a semester in Santiago studying with IES and at la Pontificia Universidad Catolica de Chile (PUC), one of the top-ranked universities in South America. There are also opportunities to take classes la Universidad de Chile, another excellent school. All classes are taught in Spanish, and, though Chilean Spanish, with all its "chilenismos," is admidedly difficult to pick up on right away, after a few weeks of adjusting, I felt comfortable in the classroom. The IES staff is fantastic - friendly, knowledgable, and willing to help - and the professors really know their stuff, and are generally very patient with American students.
IES arranges housing with host families, which is one of the best ways to immerse yourself in the local culture and language. The homes are in safe neighborhoods, and IES takes care to make sure the students feel comfortable there. I also highly recommend signing up for Tandem, a language exchange program sponsored by PUC which pairs foreigners who want to practice their Spanish with Chileans who want to practice your language. You meet once a week for an hour, speaking alternatively in the two shared languages. This was one of the highlights of my semester and it is a great way meet local students and make Chilean friends.
There is plenty to do in Santiago - lots of museums, cultural events, and nightlife. Beyond the city, there are incredible travel opportunities. The Andes Mountains provide a perfect location for hiking or skiing and are just an hour or so away. Or go west for a Pacific Coast day trip. From north to south, Chile is home to spectacular landscapes that are must-see's. The Atacama Desert, Chiloe, and Patagonia were some of my favorites.