After recently returning from KK I'd like to recommend a hostel for those planning to visit on a budget.
We stayed at the Akinabaku Youth Hostel in Gaya St and found it to be excellent. we had previously stayed at Ang's hotel and found that we liked Akinabalu much better. Looking through the guest book, there were constant comments praising Akinabalu. It was very clean and friendly. For RM20 you had a bed with linen and a large sarong you can use as a top sheet, tea and coffee, simple breakfast (toast and noodles), free internet (2 terminals), a security gate (with pin number access for after hours), luggage storing facilities, A large lounge with satellite TV and DVDs, laundry service (RM3.50 per kg).
As there were 4 of us, we had a room with 4 bunk beds to ourselves. There were also other rooms with a double bed and a bunk bed or 5 beds in another room. While the RM20 room was not airconditioned, it was very airy and the fan was fine. On an upper level they have rooms (RM23 I think) that are sort of airconditioned of an evening (they seal up the windows in the corridor and airconditioned it with fans in the rooms sucking in the cool air).
It had such a friendly, secure feel to it that we had no problems leaving our 12year old sitting in front of the TV in the lounge while we went out shopping.
For the price, this is a fantastic place.