For anybody on a backpacking budget, then this place is ideal. Located in the old town, Casco Viejo, the rooms at the front of the hostel have surely, the best views of the city. I found myself just staring at the skyline for half of the day. The actual hostel itself is very accomodating, social and clean.
Casco Viejo has a bad reputation. However, there is a big police presence and everybody I met was charming and wanted to talk.
Also, if he's still there, the guy in the cathedral square sells the best value for money hot dogs-35cents with all the trimmings! Just beautiful!
www.hosteltrail.com/lunascastle/
Casco Viejo
Panama City