We stayed at Itaca Malaga for a week at christmas. We only had to step out the door and everything was right there: the nice narrow lanes of the pittoresque old town, cafes, bars, museums, shops. So if you want to stay in the old town for a good price, I think this hotel is an excellent choice. The staff was always very friendly and helped us with everything, gave us advice and information on sightseeing; they also helped us book a bus trip to Gibraltar -- which is an extremely interesting place and worth a visit.
The cleaning at the hotel was also remarkably efficient: some mornings we went out really late, but the room was still cleaned by the time we got back from town. The harbour and the beach are not far, either (approx. 20-30 min walk), and it's a really nice walk when you go through the beautiful sea-side park close to the harbour.