We took my husband there for his 40th birthday last year. We stayed at the Santa Maria Suites which is about a 15-minute walk (5-minute cab ride) from Mallory Square, right near the Southernmost Point (take your picture near the huge point marker). The hotel was small but gorgeous.
We had a 2-bedroom duplex facing their 2 pools. There were 3 flat-screen TVs, two fabulous fancy full baths and a half-bath, and a state-of-the-art kitchen. Every night the turndown service included gigantic muffins, Dove ice cream and chocolates. There is an amazing sushi restaurant on the property (the macadamia-crusted maki was weird and wonderful). I know the hotel is having a special promotion right now and it's well worth the price.
We went to Lattitudes also. It was good, but not great. Be warned that if you eat shellfish, you will be inundated with tiny gnats trying to get to your food. They didn't bother our steaks, though. Keep your eyes open for the return ferry when you're about done or you'll be stuck on the island an extra 45 minutes and they don't let you leave the restaurant area.
We loved the breakfast at Blue Heaven. If you don't mind the roosters and chickens flapping around your feet waiting for you to drop some biscuit crumbs, this is the best place for a weekend morning. Go early because they fill up fast.
The raw oysters at Conch Republic were sublime. The conch fritters and their "award-winning shrimp and bacon," not so much.
My 11-year old son was dying for a Sloppy Joe from "Sloppy Joe's," but it was a bar and rowdy even in the mid-afternoon. The hotel had some info about a delivery service that would get you food and drink from any establishment on the island, so my son got his sandwich and I felt like a responsible mom.
Don't miss Kermit's Key Lime Pie Shop or the shell shop in Old Town for cheap souveneirs. Keep an eye out for chickens crossing the road. Also, make sure you see the French guy's trained cat show at the Sunset Celebration. You will never forget him, no matter how much you drink ("Chopin! Zee rope!!"). Have fun!
Oh, and don't do the glass-bottomed boat tour. It was like sitting on the floor in a dark, damp church basement with ancient industrial carpet and watching your grandma's 40-year old TV. It was bumpy as Test Track and took forever to get to our "spot." Once we got there, we'd see a school of fish and the engines would suddenly start up, kick up silt, and go to another section where we saw...another school of the same fish. This went on for 40 minutes and we saw 2 species of fish. The total travel time (getting there and back) was 2 1/2 hours. Not worth it. Snorkel and scuba excursions were great, so don't miss those!