We just got back from 4 days in Key West. We stayed at the Westin resort on Front St. at Mallory Square. It was wonderful! For us it was the perfect location. We have stayed on the other end of the island at the Best Western Hibiscus which was less expensive and was perfectly fine - really a great value. But it is quite a long walk to Mallory Square and we felt like splurging a little this time as it was just DH and me.
The Westin has just undergone a major renovation and it was beautiful. We had an ocean view room which overlooked the marina and the gulf. There would be a cruise ship in during the day, but they left by 3:00 most days. The Today Show will be broadcasting from the Westin on Tuesday morning if you want to see some of it.
If you have any questions, just ask. We can't wait to go back!
We stayed at the Sheridan in Feb. It is right across the street from the ocean. Also about a mile from the airport, so you will hear the jets landing and taking off if you are outside, but it didn't bother us in the least.
When we stay in Key West we like to stay at the Ocean Key. The address is 0 Duval Street - they have the sunset pier and are in the heart of everything. http://www.oceankey.com/
Definitely pick a place in Old Town. If you get too far north on the island it's just like any other Florida strip mall area. We have been twice - first trip stayed at the Holiday Inn on N. Roosevelt where there was bacteria in the water so no swimming (and too far from the action). Second trip we stayed at a funky old motel in the center of Old Town that has since been converted into condos. We loved it though! Our next trip we are thinking about staying here: http://www.casamarinaresort.com/
If you like to swim, we stayed at the Southernmost Guest House, which was right near the public beach and the Southernmost Point. It was a bit of a walk to Mallory Square, but LOTS to do along the way!