Enjoyed 7 nights here with my wife and agree with previous comments suggesting that 2* doesn't do it justice - if you are looking for a great location with good staff, a nice breakfast at very reasonable cost go ahead and book!
One word of warning - we arrived at midnight and in our haste parked the car overnight at the underground municipal car park just at the back of the hotel, what a mistake. Next morning we moved the car at a cost of over 21 euros, we made sure that we always found onstreet parking thereafter.
Nerja is a charming place with some great restaurants and if people watching is your thing get a seat at the Kronox bar just around the corner next to the church entrance, reasonable prices and welcoming staff.
We'll be back!