El Hospedaje seemed to my wife and me like a remarkably good find: characterful; quiet; reasonably comfortable; with off-street, gated parking within the compound; a relatively large swimming pool; and an adjoining restaurant where, even if you didn't have meals, you could buy wine, beer, coffee, and so on, and keep your wine bottle in the fridge. I even kept a couple of bottles in the fridge that I had bought elsewhere--they're just very easy going, here. When we were there, one could also use the computer on the reception desk to check email and the like if the management wasn't busy. Speaking of which: the owner/manager, Martin, seemed very pleasant, relaxed and humorous. He sets the tone for the place, and lives on the premises.
The hotel is on a corner, so it is potentially noisy, I suppose, though we did not find it so. The streets were not busy; and the colonial design, where rooms are set round courtyards with plants in pots, etc., reinforces the peaceful feelings of the place. If I were you, I would ask to see more than one room, if they have several available, for even though they may not vary much if at all in price, you may find that one is obviously more desirable than the other owing to its location or design.
You are just a couple of blocks--only two minutes walk--from the plaza. El Hospedaje is as convenient a place stay as there is; and given that you probably don't want to be on the plaza itself, I think its location is absolutely ideal.
There are several really attractive options for dinner on the plaza, including a couple of places where you can sit outside in good weather. Personally, the restaurant in the hotel didn't seem inviting for evening meals, though it was inoffensive and Supremely Adequate for breakfast (which, as usual for Argentine, 'continental' breakfasts, was fairly minimal). It's really more like a corner cafe for the neighbourhood. They have masses of empanadas and things like that for light fare.
Let me add here--though irrelevant to hotel reviewing--that not far outside of Cafayate is one of the 'sights' called 'the obelisk' (a natural rock formation). We improvised there one of the most beautiful and varied walks that my wife and I have ever had, heading away from the obelisk and following dry watercourses up through canyons and under cliffs. A fantastic area! This paragraph stands as an expanded version of my entry, 'when in Cafayate, don't miss_________________.'