Prague hotels do not come cheaply, but for the money, I too would go with the Savoy. It is an extremely classy place, and attracts many diplomatic types, as most of the embassies are right down the hill. The hotel is small, and it is across the river from Old Town Square, but access is convenient. The #22 tram line runs right in front of the hotel and gets you into "downtown" in less than 15 minutes.

Also, the Mala Strana side of the river, which is where the Savoy is located, is great. A little bit quieter, and away from much of the nightlife and tourist attractions besides the castle, but quite nice. It is a beautiful 40 minute walk, especially in the morning, from the area around the Savoy, down the hill and across the Charles Bridge into Old Town.