The Ocean Key is the place to stay in Key West if you want to be right on the water, close to Mallory Square, at the very start of Duval Street (the address is actually 0 Duval). The staff is very friendly and extremely helpful. We were referred by the Hilton after they failed to find us a non-smoking room, and the people at the Ocean Key could not have been more accomodating--they provided us with an upgraded two bedroom suite with a large plasma TV in one room (regular TV and large bed in the other).
The oceanfront suites have a great view and the only drawback is some noise at night from the outdoor bar, if you are planning to turn in early, you just need to pull the heavy curtains.
Seem to be alot or return guests who have been coming here from years. The bell staff is also very helpful and valet parking is provided so all you need to do is drive up and throw them the keys---not like other hotels where you are charged heavily for parking in garages or lots near Duval Street.
Really enjoyed our stay at the Ocean Key and will definitely be back.