Check out the W Istanbul thread. I really did like it. If you are SPG Plat, you will get a room with a small balcony overlooking the street.
Location is interesting for seeing a less-touristy part of Istanbul, but still only 5 minutes away from Taksim by taxi, and also a 5-minute taxi to the tram which gets you across the water (and continues, with a transfer, all the way to the airport).
Also stayed at the HI Istanbul City, but it's kinda pricey and needs an upgrade.
The Crowne Plaza Istanbul also looks like an interesting hotel with character, and some reasonably cheap rooms, and it's on the "tourist" side of IST.

In my mind, the best deal right now seems to be the HI Sisli, a brand new property in the city, a few minutes further than Taksim. It's only 15K pts (or 5K+US$60) per night.