What is the best way to rollover a 401k from a previous employer so that I may invest in both
mutual funds and individual stocks?

the *best* way is to pick a good broker (with one of your criteria being the selection of funds);
roll it All into that broker and Invest Away!

into a money market fund, ie. Vanguard Prime Portfolio. Then,transfer within Vanguard into other funds I choose; then, write a check from PP to open an IRA account at, say, Ameritrade;

you seem to have decided which funds and which broker... i don't know for sure, but i think that since Vanguard is a Fund company -- you are right that if you want to give them some of your money you'll need two accounts (but it may be that Ameritrade deals in Vanguard funds)

Or, do I need to allocate a percentage of the rollover to Vanguard and a percentage to
Ameritrade (to equal 100%) right off the bat?

*if* you've decided on V. and A.; and A. doesn't trade in V., they this would be the *simplest* method... but
you'd have to decide on the pctg. now.

I rollover into a money market fund that is an IRA, am I free to allocate where I please?

Depends. MMF is a bit vague... if you open it at a Fund Co., it will be something of a hassle to move money to broker for stock trades (i *think*, something you could do only once). If you open 'it' with a broker, you will be able to trade whatever funds *that* broker makes available.

hope that helps. (i'm a bit vague cuz *i* would never buy a fund, and i rarely say 'never'(

jpt