I was just in Colonia on Tuesday, as a day trip from EZE, and I loved it. Really wished I had planned to stay overnight. However, I wouldn't have wanted to stay outside of town. The whole point of Colonia is the wonderful, unspoiled colonial atmosphere of its old walled city. That doesn't extend out to the "suburbs."
I should also say that an overnight in Colonia would not be for everyone. It is a beautiful but sleepy town, short on action of any kind. One of my traveling companions said he couldn't imagine staying overnight. YMMV.
I'm not sure what beautiful beach you are referring to. Colonia is on the Rio de la Plata, not the ocean. The river is extremely silty -- looks like Willy Wonka's chocolate river. You can swim in it, I suppose, but it's not very inviting. The nice beaches in Uruguay start around Montevideo and extend to the east from there.