I cannot recommend the Pousada dos Quatro (no "s") Cantos too highly. It is set in a colonial-era mansion in the centre of Olinda's old town. As far as facilities go, it is the equivalent of a European 3* hotel. A nice double room with air-con can be had for less than R$200 (around 80 euros).
The accommodation is well-furnished and very clean, and the better rooms have antique furniture. As with all colonial houses, there are beautiful hardwood floors throughout. There is a cool, quiet courtyard which can be used as a retreat from the midday tropical sun, and a small swimming pool. The breakfast spread was the best that I have ever had in three trips to Brazil (although I never did try the regional specialities).
Almost all the reception staff spoke English and were extremely helpful, even booking tables for us in restaurants, arranging follow-on hotel bookings and ordering taxis. They also arranged a pick up from Recife airport for around R$45 which was still there even though our plane was two hours late!
Why stay in Olinda? Firstly, it is an economical and attractive choice for a first stop if you fly in to Recife. Recife itself contains little of interest for a European or American traveller who has seen Mexico or Portugal, and often smells as though it has been marinated in urine. Olinda's old town, on the other hand, is clean, contains some good examples of Portuguese colonial architecture, and has great nightlife.
[BTW, the only thing that can mar your visit are the so-called "guides" who will approach you in the street – their only English is the initial "hey amigo, whe' you from", and they will then follow you around interrupting you at every turn. There are three approaches that work: ignore them (rude, but effective), answer them in a language that they don't understand (Alsatian in our case), or simply tell them firmly "no". You can easily tour Olinda in a day using a map and a guide book. If you really need a guide, ask at the pousada.]
The second justification for staying in Olinda is that it is a good base for visiting the beaches to the north of Recife, where accommodation is often scarce or of poor quality. Itamaraca is worth a day trip, and can easily be reached by bus.
