The review above says it all about the Olde Empire - I would just like to add that should you be in Kandy for the first day of the Perahera (Elephant Festival) then the procession passes right underneath the balcony at the Olde Empire.
When I was staying there was a great mix of tourists and Sri Lankans and so I learnt a lot more than I expected - make sure you spend some time in the planters chairs at the end of the balcony and soak up some of that colonial splendour!

To rate the Olde Empire on a regular scale is hard. It's undeniable charm comes from its age (149 years, according to the staff, but not all that time as a hotel), its truly excellent location and the graceful decrepitude of hallways and staircases. If you crave modern luxuries, by all means stay at the Queen's Hotel instead (it's situated next to the Olde Empire). If, on the other hand, you value nice evenings on the verandah, with colonial-style furniture, overlooking the park, the lake and the temples, hearing the incessant drumming of the guardians of Buddha's Sacred Tooth, watching wild monkeys scurry around on the roofs, smelling the incense that is burned to keep mosquitos away, then going to bed under an old mosquito net, this is the place for you. It is also rather inexpensive, even if you take their best room. Of those rooms there are two: they are fairly spacious, and while there isn't much in the way of windows, they have a large door opening to the verandah, making it almost an extension of the room. These rooms have their own, incongruously modern bathroom (toilet and shower, cold water only). I would assume that the simpler rooms are less inviting, but the shared toilets upstairs are tidy and proper (the one for the restaurant's guests, downstairs, is very shabby).

The climate of Kandy is pleasantly cool, so the absence of air conditioning won't bother you much. There is also no TV (but you'd be stupid to go all the way to Kandy to watch the telly), no phone (there's a button to press for room service, though) and no fridge/minibar. There is a rustic desk and other furniture, pretty nice actually, and a ceiling fan. The rooms are clean, but you might encounter cockroaches (we saw only one in four days). The beds were not made daily, and the waste basket was not emptied, but it would certainly have been done if we had asked the staff to take care of it.

Breakfast is excellent (try the curries and string hoppers) and is served in the tidy upstairs dining room. The downstairs restaurant is very popular among locals and tourists alike, but makes a rather sloppy impression. The hotel staff is friendly, helpful and flexible, and will help you get a good deal when you want to hire a car with driver.

Strangely enough, the entrance is closed with a large iron grate at night, but a staff member sleeps inside and opens up for you when needed. From the point of fire hazard, the Olde Empire is thus a disaster waiting to happen - an old wooden building with blocked exit, what if the night clerk can't unlock the grate in a panic situation?

In conclusion, I would recommend the Olde Empire to anyone who wants local colour and a taste of faded colonial glory. You will definitely leave with the impression that you have indeed been to an exotic place that doesn't even try to imitate modern Western hotels. And if you can't live without the luxury of hot water, it is possible to pop over to the Queen's Hotel and make use of their swimming pool and showers for a small fee.