Vanderbilt Hall is the nicest hotel in downtown Newport IMHO. In the four years I went to school in Newport, I had a lot of people come visit and stay in various hotels. Aside from the Inn at Castle Hill (which is out on Ocean Drive), Vanderbilt Hall is the best. I stayed in a duplex type suite a few years ago during the summer season. The room was not as big as I expected, but I believe they classifed that room as a junior suite and that there are larger one bedroom suites. I did not use Amex FHR for that stay.
The best part about the hotel is the location. It means you can walk nearly everywhere in Newport and don't need to deal with the parking hassles. It was always great to just be able to hand my keys to the valet and have him take care of the car. Parking and driving in Newport (as in most summer resorts) is a big hassle in the summer.
I love Newport and much prefer it over the Hamptons. The crowd is mostly from Boston and more laid back than the traditional New York summer haunt scene.
If you're looking for restaurant suggestions in Newport, I would suggest Christie's (fun local lobster and seafood restaurant), the Black Pearl (more formal, but with a less formal bar annex) and Clark Cooke's Candy House (like Christie's, but a bit more upscale). If the weather is great (and I hope it is), head out to the Inn at Castle Hill for lunch. The view is beautiful from the restaurant and they love having kids around. Lots of kids playing on the grass and people with their babies everytime I have been out there for lunch.
If you're interested in tourist spots, I would recommend the Tennis Hall of Fame (and lunch in the Casino), the Breakers and Hammersmith Farm.
Feel free to PM me if you have any questions.