I just stayed at the Lyall a couple of weeks ago. For us, I think it was the right choice. I wouldn't call it a five star, but it is certainly not three stars either. I think your choice depends on what you want to do in Melbourne. I have to say, downtown Melbourne is not the most inspiring place in my opinion. Sorry, Aussies!! It is an interesting city, but the CBD is pretty crowded and the terrible awnings put on the buildings make some areas look downright tacky. Those tin awnings cover up some great architecture. That said, we enjoyed Melbourne, but had no great need to have the view from the Westin over Swanston Street. If you want to be walking distance from everything, however, the Westin should probably be your choice.
We were looking for larger accomodations since we were travelling with our 10 and 12 year old sons. The Lyall offered a two bedroom apartment, which was not large, but certainly offered almost every amenity I could think of, including a nicely fitted kitchen. The staff was terribly nice and helpful. Also, since we were doing some driving trips out of Melbourne, the location of the Lyall was much better for us than having to fight the traffic in the CBD every night. Another nice touch the Lyall offers is free internet in the business center off the lobby - and I never had to fight anyone to use it!!! It is a very personal feeling hotel, and is certainly not for someone who wants to come and go without being noticed. The transportation into Melbourne is pretty convenient -either tram, or the train is located only a few blocks away, and it is only two stops to Flinders Street. So, we really did not consider the location to be too much of a minus. I did not really care for the section of Toorak Road that runs near the Lyall. It is mostly banks and few small cafes. Not really anything I cared to patronize. There is a great restaurant next to the Lyall - Harvey's. It has great food, and wonderful service.
So, the Lyall can be a really good experience depending on what you are looking for.