Carlton Arms Hotel is $94 for a double with themed, wacky and arty decor in rooms and corridors. Basic and friendly, it's like staying in a community arts centre. Central with sights and restaurants in walking distance.
160 East 25th Street, corner of 3rd Avenue. 212 679 0680. artbreakhotel@aol.com
Updates
The hostel itself is ok, but be sure to check and double check that they have booked you in for the right number of nights. We arrived to find we were booked in for two nights instead of three, and in spite of my proving otherwise by showing them relevant emails, they were rather rude and unrepentant about it!
Is this your business?