Two good options to stay in Varanasi include:
Gateway Hotel Ganges Varanasi: When I was in town, I stayed at an older Taj hotel, the Taj Ganges, which was basic but the best in town. It has now been remodeled and is now under the Taj Gateway brand and is a very good place to stay away from the crowds along the river.
Taj Hotels now has a new luxury hotel, the Taj Nedesar near the Gateway. It is a beautiful property in a converted palace. You might consider staying here if you want to be pampered.