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I have stayed at Paradise Pier. I haven't stayed at Candy Cane Inn, but I did stay at a place a little further down Harbor Blvd, so I feel like I could judge the walking distance. Walking distance from both hotels is very reasonable, it will take you about 10 minutes. The other hotels along Harbor Blvd. within walking distance of the parks are good options as well. What I choose depends on which place has the best deal at the time. Some of them have fridges and microwaves, some have continental breakfast, some have free parking. What you would like depends a great deal on what is important to you.

As for whether it is "worth it" to stay on Disney property, you will get many differing opinions about that. It's not as worth it as it is at WDW, meaning there are less perks for staying on-site, and less variety of options at different price points. I enjoyed my stay at Paradise Pier, primarily because it had a great view of the parks, but would I pay to stay again? Certainly not full price, only if I was able to get another good deal on it. The same goes for the other on-site hotels as well. They would be awesome if I had money to throw away, but I use the hotel mostly just for sleeping, so there's really no point to paying more than I need to.
 
Here's a map of the surrounding hotels for DL; it lists which ones are walkable and which ones are really not:
http://www.accommodationsneardisney.com/Disneyland/default.asp

In all our trips to DL we have never stayed on site, for us the cost of the hotel is not worth it as we're only sleeping there. The price difference is quite substantial (even with PPH) and that means we can spend more on food, souvenirs, etc.
 
We're big fans of the Candy Cane. They have free breakfast, free parking, and free wifi, and the people are super nice. They do have a shuttle, but we always walk. It's an easy walk (even with a toddler) - maybe 15 minutes? I think, for a NYCer, most of the Harbor Blvd ones will be considered very walkable :)

We haven't stayed on site yet, so I can't really compare to that. There's really very few benefits for staying on-site (some off-site hotels, like the Park Vue, are closer!), especially if you're looking at Paradise Pier.
 

You should also consider staying at the Park Vue Inn. It is directly across from the DL main gate. Its closest hotel there is to DL maingate. Do a search in the forum for Park Vue Inn. A lot of people like it. Free hot breakfast and free parking. Its nice to be able to go back in the middle of the day and take a nap or just relax without having to walk much.
 
If you splurge for the Paradise Pier you will get early entry to DCA on Monday. Are you only going the one day? We've never stayed at a DL hotel because it's cheaper to stay off property. I've heard great things about the Park Vue. There are also several other hotels directly across the park like Desert Inn and Suites (charges for parking), and Del Sol. Pretty much anything along Harbor across from the park berm is walkable. Also many hotels on Katella near Paradise Pier are easily walkable as there are signs pointing you through the Grand California Hotel to get to the parks. They tend to be cheaper, but it's nice to stay right across the street. We were lucky and booked the Desert Inn for only $89 a night. Even though we have to pay for parking, it's still a good rate to be that close to the parks.
 
As others have said, it really depends on what is important to you. We have stayed everywhere from RV parks in the area, to Harbor motels, to onsite. We have two young kids, who are up very early. So if we go during off season when the parks open later, it is often worth it to us to stay onsite so we can get in to the parks at 8am or 9am (when regular hours are 9am or 10am). We get so much done in that extra early hour while the kids are energetic and fresh for the day, so the onsite prices are worth it to us. Other times during high season, if the early opening is at like 7am, we know we won't really utilize that because we won't be up and moving out the door in time, so we stay off site but close by. The other factor is are we going when it is likely to be prime pool season. We always do an afternoon break so we want some place we can have fun at a nice pool area if it will be nice enough to do so. Walking wise, we have walked from as far as 1.25miles, so we don't mind walking. Staying close, however, is REALLY nice at the end of the night ;).
 
Park Vue Inn is our favorite followed closely by Best Western Park Place. They are the two hotels located directly across from DLR's entrance and both have great free breakfasts. You can't go wrong with either one.
 
You should also consider staying at the Park Vue Inn. It is directly across from the DL main gate. Its closest hotel there is to DL maingate. Do a search in the forum for Park Vue Inn. A lot of people like it. Free hot breakfast and free parking. Its nice to be able to go back in the middle of the day and take a nap or just relax without having to walk much.

Another got for Park Vue. Recently refurbished, close, free hot breakfast, free WiFi...did I mention close? Really close. Closer than the Disneyland hotel.
 
Candy Cane Inn is a great choice! Free breakfast with lots of choices, free parking, free wifi and exceptional customer service. The walk to the Esplanade is maybe 10 minutes....easy walk, down Harbor Blvd, on the same side as the parks. They do have a dedicated free shuttle that's on-time, if you care to use it. It's a great place with excellent management. You really can't go wrong there. That said, on-site is great....LOVE the GCH and DLH!! if you can swing it!
 












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