My father and I stayed at the Hotel Colonial for 5 nights back in July of 2006. The room was clean, the beds were comfortable, and the staff is friendly. The location is very central, right in the heart of Zona 1, close to restaurants and the Mercado Central. The hotel also has parking.
My only complaint would be that for breakfast, the kitchen would run out of fried plantains or cheese. The very nice lady that served breakfast explained that they only make a limited amount of food to prevent waste.
My father is in the process of moving to Guatemala. He's was in Guatemala in October 2006 and again last week. He has stayed at Hotel Colonial both times.
The hotel is housed in a very interesting building, very typical for 1930's Guatemala City style architecture with 2 stories and beautiful central courtyard/patio with seating. The front desk clerk told me that the building was originally an orphanage.
The shops shut down early (7PM), and there's hardly no one on the streets (7a Avenida) after 9PM in fear of the thieves in the area. Dominos Pizza and Pollo Campero does not deliver past 9PM. Take a taxi and go to Zona 4 to Cuatro Grados Norte for late night fun!