I think it's a matter of taste. Do you want a stunning and expansive view of the lake (and surrounding volcanoes), or do you want to be right next to the lake?

Personally, the charm of Lake Atitlan lies in the scenery itself, as well as the surrounding villages, rather than the water. Yes, it's a bit of a drive to get from Casa Palopó to Panajachel; however, it's no more than 10 minutes by car so for me it's a moot point. We also dined at Hotel Atitlán and were very underwhelmed - it definitely does not hold a candle to Casa Palopó in this regard.

If someone were to stay for 1 or 2 nights in the area, then a case can be made for Hotel Atitlán due to its convenient location. For me, however, it's an easy choice: Casa Palopó all the way.