We stayed 8 nights with my husband in Guesthouse Marknagil in July 2011. We had a very pleasant stay and if we ever go back to the Faroe Islands, we'll stay here again.
Guesthouse Marknagil is a student dormitory that serves as a hostel in summertime. Two rooms share a bathroom and a toilet. We had booked one room, but since the other one was also free, we were given the key there as well. So instead of one room, we got a nice little apartment! You almost never see this happen: they upgraded us not because they had to, but because they could!
Service was best part of our stay. Willie the keeper was super nice and helped us with everything from renting a car to finding the best restaurants and travel routes and buying tickets to a rock festival.
The rooms were medium size and quite ascetic, just two sofa beds and two work desks. As we had two rooms, we were able to create a bedroom and a living room, which was very comfy. The panoramic view of the Nólsoy fjord was magnificent. A fridge and couple of carpets would have been nice, but hey, it's a hostel not a hotel.
The rooms, the toilet and the shower were spotless. The trash was taken out every second day and you could change the towels yourself. There was a free wi-fi in the common room and we were given a cable for the room. Good breakfast (bread, different kinds of cheese and meat, veggies, sausages, bacon, eggs, cereals,muesli, yougurt, juices, coffee, tea...) was included to the price.
From the hostel there's an about 20 minutes downhill walk to the centre of Tórshavn and a quite tiring upphill walk when you come back. We rented a car so that wasn't a problem, and there's also a free bus from and to the centre.