Can you extend it, travel somewhere else on your own dime, and just return to London for a later flight home? I'm starting off in Edinburgh before I come down to London. Much more reasonable prices there (my hotel is 99 pounds a night including tax). If you had the time to spin this into a 10 day trip I'd encourage you to go. You could easily visit York, Edinburgh, and even head up further into Scotland if you had the time. Might be late to book discounted train travel, but a railpass could be delivered in a few days to work around that (I had mine in 4 business days via UPS--much better value at this stage than individual tickets). The cheapest London-Edinburgh one way ticket was $100 ten days out, but I needed the flexibility in case my flight arrived late, as I do intend to go right up to Edinburgh after arrival at LHR.

I have friends that just booked their hotel this last week very near Marriott County Hall and the cheapest rate in that area was $320 a night. Marriott was certainly higher than that. The hotel I'm at was $700 a year ago and has now dropped to $450 (I'm staying on points).

Take a look at my photos below from the Athens and Beijng Olympics. I think you would have a good time even though the trip would cost you a little more than what you could piece it together yourself at. I'm only going to attend two days of swimming this time, compared to all 8 days the last two times, and I'm just as excited about going as I was before. There's just nothing like going to the Olympics.