The website doesn't make a distinction regarding award tickets.
The reservation is made directly with the hotel, LH isn't involved.
So there shouldn't be any problem, at least as far as I know, regarding an award. I wasn't asked, and haven't heard of any difficulties.
It certainly wasn't a 'special' hotel, but it was a comfortable enough place to sleep and a respite from the airport, a very different place than the Frankfurt Sheraton which is obviously more convenient.