Burning fat first thing in the morning is the easiest way to do it. Reason being that your glycogen levels are lowest first thing in the morning since you haven't eaten probably for about 10 hours. As long as you keep your HR about 65% to 75% of your HR-Max, you shouldn't have too much catabolizing of your muscles. But be careful, because if you start training too hard and go anaerobic (which is around 85% HR-Max for most people, but varies slightly depending on your conditioning) you WILL be using muscle for fuel -- you probably don't want that.
This form of workout, where one trains for up to 2 hours in the morning before eating, is called lipolysis and was first devellopped by AIS (Australian Institute of Sport) so that their elite endurance athletes could stimulate the body's response to very long workouts (4-7 hours) without having to train for that long.
In terms of what type of exercise would be best for burning fat -- running is good for bringing your HR up pretty high without too much effort since you're using most of your body's muscle groups. Cycling is good too (I'm an Elite Cyclist FYI) but since your legs are the main muscle group working, you'll have to work comparitively harder than running to get your HR as high. You will get a nice ass from lots of cycling which doesn't come as much from running -- a nice benefit in my opinion.
I hope this answers your question. If you need more help let me know.