Hotel Ganesh Himal
Far better than the price suggests
The Ganesh Himal has been a favorite of backpackers and mountaineers for years. The rooms and baths are decent, and there are comfortable nooks on each floor for relaxing. The small garden is pleasant, and breakfast is good (but we suggest you eat your other meals out.)
The hotel is a bit south of the Thamel district - 5 minutes walk only - and is also a short walk to Kathmandu's Durbar Square. Nothing fancy here, but it is a great value.
Make reservations with the Ganesh Himal directly at http://www.ganeshhimal.com/booking_advanced.html