We had some luck with HI Old Sydney which is in The Rock area, and we prefer it over IC Sydney.

I emailed the hotel ahead of time to ask possible upgrade and received the top floor (Attic with inclined window) that is directly in front of Opera House. It was in May and during the Vivid Sydney Festival, and it was magical every night when we opened our room door in the dark with the Opera House illuminated with vivid color and changing pattern popped right in front of our eyes.

See the picture of last year's festival you would understand what I mean.

http://travelever.com/events/10-vivi...-illuminations

We like this more than the firework on New Year's eve.