I just have to step in and defend my beloved Chelsea Hotel. I've stayed there, known people who lived there, and worked across the street from there. It's a nice, albeit offbeat, little place. The rooms are all different, but all clean and well-kept. The staff varies from friendly to just plain weird depending on who's on shift. Then halls are full of original art, some of which is from very well-known artists. When you stay there, you can walk around the halls and see the doors that various musicians painted when they lived there.
And the restaurants on 23rd between 7th and 8th are great. On 7th, Fast Wok is one of the best cheap-ass Chinese places in town. If you go towards Broadway on 23rd, you get the Comfort Diner, which is awesome comfort food. El Quixote is great for tapas and drinks at the bar after a late night at work. The list goes on. There's pretty much anything you could want within a few blocks.
There are some boutique hotels in the stretch between Washington Square and Chelsea, but they usually book up really early. Can't remember the names of them, though.
