We went with Thomson. There are cheaper B&B options in their brochure for Funchal, but those would have to work very hard to provide better value. The management gave us a personal welcome and farewell, and all the staff paid us plenty of attention in between, without being over effusive, a difficult balance to make actually.
There is a great choice for breakfast, and from our perspective I would praise particularly the fruit salad which includes a large selection of the gorgeous fruit available on Madeira, and the fresh rolls of many types. The bedrooms are spacious, the beds are large, and the hotel is well positioned for the old town restaurants and the town centre with the covered market, and bus/taxi options. (We did several Levada walks with the aid of service buses to get to and from them). There is free Wifi in the bar/computer room area. The bar service and lunchtime snacks are excellent. A feature we thought particularly thoughtful was the bathrobes provided which we used to relax in after a mid evening shower. Our towels certainly, and we think also the sheets, were changed during our week there, and the cleaning staff left the rooms immaculate after their daily round.
We are very likely to go back at some point.
Only some VERY minor niggles and I would strongly suggest these do not put you off: the hot food at breakfast was not all that hot and you might find ants in your room, but this seems to be endemic in Madeira and the Canaries,and so don't leave uncovered food; The view from the seaward rooms does include some adjacent derelict buildings (but also the spotless swimming piool and the beautiful garden).

We arrived at the hotel New Years Eve to see the amazing Firework Display from the harbour and surrounding buildings in Funchal,and Mr Dias Snr and Jnr invited us onto the Penthouse Suite Balcony to watch with nibbles and Champagne.VERY IMPRESSED. The hotel is part of Thomson Small and Friendly ( 35 rooms) The hotel has a wonderful selection of food including Mr Dias Snr sausages,jams,fruit salad,apple pies,etc.
The sea view rooms look over the harbour and the old town of Funchal.
The staff try to be friendly,but professional.we have stayed in several small hotels and all try very hard to remember your names,but it is an International hotel.we didnot hire a car because of car park facilities and also the complex one-way system in Funchal.There are several good restaurants within 200 metres of hotel.we used a local Taxi Driver to take us to Nuns Valley highly recommendable.He parks his Taxi outside Porto Santo Marie Hotel Entrance,his name is Agstinho (1045) Also whilst eating in a restaurant we had the privilage of shaking hands and meeting Roy Hodgeson with our friends Al and Lil. We had a little problem with ants in our room which we had to report to reception a few times,but was dealt with quite quickly.

Perfect small friendly hotel. Great staff and owners who really care. Great location in the heart of the old town with a view over the bay and much better than hotels in the hotel district. The staff were always very helpful and friendly and the owners Mr Dias Snr and Jnr were perfect hosts. Can't speak highly enough of this great little place.

This was our third visit, the second this year, to an exceptional hotel. The location, service and cleanliness are second to none. They serve a great breakfast famous for Senor Dias' homemade banana , custard apple etc jams, and fruit salad. If you hate large soulless hotels with indifferent staff & service and lots of facilities which you never use this is the place for you. Thank you all for another great holiday. See you next year.