Very shabby, even by hostel standards. We got tricked into this hostel in this location by trying to book the other Polanco up in Urriola, so definitely not our favourite part of town, even though it is perfectly central.
The rooms are dirty, sheets and covers are presumably(?) washed, but stained. There is some sort of rusty dust that seems to materialise (maybe fall from the ceiling) on the bed day after day, also unpleasant. Rooms are tiny, cramped and very very noisy - facing the inside you have the noise of other guests, while the windows to the outside face a busy street (in summer the window has to stay open for air, so the noise is a nuisance).
The best thing I can say about it is that the bathrooms are remarkably clean looking, considering the state of the rest of the place (crumbling walls, ancient, also crumbling, carpets, stinking curtains...). They were by far the least unpleasant part of the place.
Again (as in the other Polanco in Urriola) the owner is a mystery: serious incompetence or mediocre scam-artist? Who knows? Prices were improvised day by day. I was moved to a smaller room from my original booking to make space for more guests, which was supposed to earn me a discount, which later was again much reduced (the discount). On the other hand, we got in a huff about it, started arguing, and maybe for the Chilean pathological fear of conflict, or maybe because the scam artist was out of gas, in any case he very readily gave up and just let us pay whatever we thought was fair... odd.
Overall, it's better than nothing if you are in a last-minute panic. Prices in Valpo are crazy, even for dorms in hostels, while this one is affordable, if gross. I would keep it as a very last resort though.