I stayed at both locations in Milan this past June. The Westin Palace was nice and we were upgraded to a ridiculously grand suite on a points award. We stayed only as a layover and went to Como the next morning, so we didn't explore the area immediately around it, but my impression was that there wasn't much to do around there.

Later on in the trip we came back to Milan to do some shopping and stayed at the Diana Majestic due to its better location. We were given an upgraded room again using points, but the room was very disappointing. The hotel is in need of renovation. With the current exchange rate, I'm grateful for getting a room on points, and am a very happy Starwood customer.

So unfortunately you have to choose whether quality of accomodations or location is more important.