Just back from a great week at the Hilton Dahab. Having read some iffy reviews, was a bit worried about the hotel, but the rooms were spacious and clean, my only gripe being that the bathroom could have done with a bit of an update. The buffet breakfast was consistently good, with a very broad choice of items. Only ate dinner at the hotel once, but the buffet food was also far better than some reviews would lead you to believe (and only £9 a head!). Would recommend the B&B package tho', as there are plentiful restaurants in town, with two course dinner from £8GBP for two! (inc soft drinks and tip!).
Dahab town is worth several visits for dinner / drinks / souvenirs, and you get less hassled here than in Cairo or Sharm. You will, however, be chaperoned into Al Capone's at least once, and the food here is very good, so no need to resist too hard! Take a taxi to town - we walked it once - it's a long way in the heat, and as taxis are £1GBP each way, it's just not worth it!
Diving was great overall. We used the hotel diving centre (Sinai Divers). They are not the cheapest, but very convenient. The level of tuition was high, and the team was very friendly, well organised and safety concious.