If you're going to stay in Patong, then the Holiday Inn is a great place to stay. It's a short walk from the centre of town, and just across the road from the beach. However, it's far enough away from the nightlife to be virtually noise free - I had no problems sleeping at all.
The hotel is split into 2 parts - the main wing, which is pretty nice, and the Busakorn wing, which is more modern, and built around a fancy swimming pool and looks great. It wasn't much more for the Busakorn when I booked so that's what we went for. The room was good, the only real drawback was that there was no bathtub - only a (pretty deluxe) shower.
Apart from the slightly frosty reception staff, everyone was friendly including the numerous security guards. One unusual thing was that the minibars were empty and there were 2 shops on the premises to buy drinks etc - at reasonable prices - a great idea!
We ate in quite a bit - as the food was really good, although if you're looking for really spicy Thai food you may want to head out to a restaurant.
Update: After the damage from the 2004 tsunami, the hotel was completely refurbished. While the Busakorn wing now looks much the way it was, the main wing took a bit more damage at the time and has had more extensive renovation - all now finished - and should be even better than it was prior to the tsunami.
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Theme: Hotel
Comparison: more expensive than average
Prices: US$120-180
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Phone: (076) 340 608
Address: 52 Thaweewong road, Patong, Phuket 83150
Directions: Southern end of Patong Beach.
Website: www.holidayinn.phuket.com