My recommendation on where to stay in downtown Valencia is the Vincci Lys Hotel, Calle Martinez Cubells #5.
This is a 4 star hotel on the south end of the downtown area near the pedestrian zone. I was so pleased to have a large, attractive room. The staff was very friendly and helpful and the breakfast was good. The servers there had big smiles every morning. I liked being able to walk everywhere downtown including to good restaurants for dinner, and it was close to the metro station to get to the beach area. It is also near both the Estacion de Norte and the AVE train stations.
Other hotels getting great reviews include the Caro Hotel for great design, Hospes Palau de la Mar also for great design, Vincci Palace, the contemporary Barcelo Valencia, Melia Valencia and the Silken Puerta Valencia.