Stayed at the Rialto in October 2009 for a long weekend leisure trip. The hotel was recently re-furbished, and it shows. It is a very beautiful building, with the new fittings complementing the historical facade. We thought the Bluestone Wine Bar on the bottom level in particular to be very pleasant surroundings.
Location is okay. It is about 2 or 3 blocks to the main shopping district, but there is a tram stop and a taxi rank outside if you can't walk that far. To go to the Princess or Majesty's theatre is only a short tram ride up Collins St, then 1 block's walk.
The rooms were, as you would expect, quite new, with a very comfortable large bed and flat screen tv. We stayed in a King Deluxe, which was not overly large, but well laid out and attractive.
As others have said, the windows face into the interior of the building, and you cannot access the balconies. If the curtains are drawn it is quite dark, and sleeping in is very easy.
The breakfasts were good, with a good variety, if a little pricey at $38. We also ate 2 dinners at the hotel, and found the food excellent.
What really impressed us about this hotel, though, was the staff. Without exception they were helpful, friendly and efficient.