Ok, it's not 5-star luxury, but if you want a comfortable, ideally located, locally owned hotel that immerses you in Kandy, as opposed to being an anonymous 'anywhere-in-the-world' type of place, then Hotel Suisse is for you.
The pool is tremendous and normally very quiet. Staff are generally very helpful. Bala, who has worked there for 25 years is a wonderful person. A couple of the younger members of staff will try to get you sign up for trips/deals with their friends - stay clear of this and tell a member of management about it.
You can see everything in Kandy on foot by staying in Hotel Suisse. All the other 'grand' hotels are miles from the centre of town.