Malta is only 26 miles long IIRC, so everywhere is nearby in relative terms, and the buses are excellent if you're not in a hurry. Valletta is the capital, yes, it's been done up a lot in recent years with EU money, I remember being there in the 1970s and it was still literally a bombsite in places, now it's very swish. You should find that out of season, hotels are very good value indeed. I'll defer to others about which is the best, but the stay at the Hilton I had in early December was fantastic.