During my extensive stay in Cusco, I ended up at the Casa de la Gringa for various weeks, staying in different rooms and also in the annexed building. For the affordable price it was really the best thing I could find - especially the hot water was so much better than in other hostels I got to know (something you get to appreciate with those cold Andean nights!). The staff was also friendly and forthcoming.
It's situated really close to to everything you want to see in the city, a comfortable distance from the main plaza and it's surrounding street so that not every time you walk out the door people try to sell you stuff (something you can easily get annoyed with in Peru). Also, it's a place where I felt safe leaving stuff behind in my room, not having to take everything with me all the time, or even in the general storage room when I left the hostel for numerous days. They also have a safe for your passport, and I felt comfortable leaving valuables there with the employees.More