A few days to acclimate is a good idea if you are doing the trail hike. Alt. sickness hits people differently....

I would suggest Hotel Cuzco Plaza I, I stayed here a couple of years ago and would go back. Hotel Cuzco Plaza I is located in Plazoleta Nazarenas, which is the same little plaza where the Hotel Monasterio and the Museo de Arte Precolombino are located. This hotel is right behind the cathedral in the plaza de armas. If you are looking at the cathedral you take the street on the left up a hill and there you are, so it is also very central.
It was very clean and breakfast was included. There is an atrium where guests can sit and drink tea that is provided. Also they provide a left luggage service, ie. they will keep your packs and what not if you do not want to be loaded down going to Machu Picchu.
Here are the room rates:
* Single $40
* Double $55
* Triple $60
* Extra Bed $20.00
here is a phone number - 1-866-764-2587 (from the US)

Hope this helps! Have fun on the trip!