My two top choices for hotels include the Posada Del Angel which has five suites and looks like a wonderful spot to stay. It is located at 4A Avenida Sur #24A.
The Meson Panza Verde is a wonderful boutique hotel with a great restaurant. I recommend the hotel but ask for a quiet room away from the dining tables outside the corridor of certain rooms. It is located at 5a Av. Sur #19.
The Hotel Casa Santo Domingo is a luxury hotel you might consider. It is well-known and is located in an old convent. I felt the hotel was very large and very crowded; there are better options in town which are smaller and quieter. However, I have a friend who stayed there recently and loved it as well as their restaurant. The property does have several museums that you might enjoy which feature religious paintings and sculptures, colonial ceramics, pre-Colombian objects, handicrafts and contemporary art.
I really enjoyed staying a the Pensativo House Hotel. It has closed for a while, but is now re-opened. It has lovely rooms, grounds, a restaurant and a pool. The views of the nearby volcano were outstanding. I look forward to staying there on my next trip. 4a Avenida Sur No. 24