Hotels I've enjoyed during my travels
When I travel to Europe (or any other place), I usually choose the smaller hotels (classified as 2 or 3 stars), such as pensiones or family-owned hotels, rather than "American-style" or pricier hotels.  I agree when Rick Steve's writes, "A tight budget forces you to travel close to the ground, meeting and communicating with the people...simply enjoy the local-style alternatives to expensive hotels and restaurants." 

Location, Location, Location!  For me, this is a huge priority when choosing a hotel.  I like to be in the center of town near the major sights and also near transportation, such as the metro or train station.  This saves time in getting to one place from another, especially when having to take the train very early in the morning.  Examples are:  The Left Bank in Paris, being near the Campo dei Fiori in Rome, or near the Marienplatz in Munich.

I choose my hotels from several guidebooks including Frommers, Fodors, and the Great Sleeps series by Sandra Gustafson.  Overall, these books are reliable and their descriptions of the hotels are accurate.  I also read reviews on discussion boards on Fodors, my “main home” when I’m doing travel research. 

For my trip to London in May 2005, I used Priceline.com.  For me, this was the best option for me in expensive London.  I ended up with a great hotel at a great price.  I also used Priceline when I books my hotels in Puerto Rico. 
USA HOTELS