Based on my experiences:
Most of the action / nightlife is on a street called Laugavegur and along it's cross streets.
Located along Laugavegur:
-Definitely recommend Hotel Fron, clean, classy rooms and included breakfast
-budget option: Reykjavik Backpackers--a few doors down Hotel Fron. Most of the other hostels are ways away from the action.
I also stayed in CenterHotel Plaza on Adalstraeti, this hotel is a little off from Laugavegur but still within walking distance from nightlife and dining options.
For hotel deals, it's a pain in the ass comparing but I do recommend comparing prices/hotels between:
hotels dot com
priceline dot com
orbitz dot com
and expedia dot com
I used this method to find my accommodation that matches my budget.
There's a website that searches all hotel sites and compares prices (like Kayak dot com) but I forget.
Reykjavik is immune to google maps so I recommend (automatically translates to English if you use google chrome):
http://ja.is/kort/#x=356768&y=408352&z=9&q=laugavegur
to preview your hotel location relative to laugavegur street.
And for more options, buy the Iceland Lonely Planet.
good luck!
