After researching this website and some travel guides, we chose the Hostal Valencia. It was beautiful, charming, and had a lot of character. We were happy to see that we made the right choice!
Ask for a room on the top floor with a balcony if you can get it....we had the top floor corner room (the "Alzira") with the L-shaped balcony. The balcony wraps around the building and gives you a great view of what's going on in the city around you. You can people watch forever.
The front desk staff were very friendly, helpful and always made good recommendations.
The location is perfect, right in Habana Vieja. I will stay here again when I come back to Havana, and would recommend it to everyone!