I want to quickly run down our impression of the hostels here in the city so that others won't have to go through the same gruelling experience of driving all about in the blazing heat only to discover that the place was either a total dump or non-existent.
Using our trusty "Lonely Planet Central America" handbook, we visited every budget place we could find and these are our conclusions.
Luna's Castle: Easily the most widely advertised hostel in town as we found posters all throughout costa rica and panama. It's large and very popular. If thay're full, as was the case when we arrived, they'll let you sleep in the grungy "movie room" ($10 per person) where people gather in the darkness throughout the day to watch "The Motorcycle Diaries" and other movies in that vein. If available a private room is $12 per person. There's currently a lot of construction under way and the place is a mess. In addition, they don't have any place to store a motorcycle, although they do claim that it's safe to park just outside the front door, as there's a security guard on duty all night. It was clearly a rockin party hostel but we decided to keep looking.
Hospedaje Casco Viejo: Not far away, this place was cheaper and quieter and was eventually where we ended up staying our first night for $16. They also did not have motorcycle parking and we had to lock our bike up out front and cross our fingers. Things couldn't have worked out better though as the next day we found out that the owner of Casco Viejo also rents out rooms in an apartment building 5 blocks away that include private bathroom, kitchen, balcony and MOTORCYCLE PARKING for only $15 a night! He also said he'll cut us a deal if we stay for a week and so we moved in that day. This place is hands down the best deal in town and a lucky find for us. We're also taking private spanish lessons from one of the hotel workers for $8 an hour for both of us! Our teacher's name is Ariel if you want to ask about him. It's a lot cheaper than the alternative and is going great. The place has Internet for $1 an hour and free wifi in the apartments.
Zuly's Independent Backpackers Hostel: They've got a gated parking lot out front or they'll let you pull a motorcycle back into a garden which is nice. Other than that the place is nothing special with regards to the building or rooms (pretty gross actually) but it's mostly full of international travelers (if that's something you like) and it's downtown near some restaurants and bars. It was $25 for a private room though and we decided it wasn't worth it.
Casa de Carmen: This place was fantastic. It's not exactly walking distance to anything fun, but a short cab ride will get you anywhere you want to go. The place has a great layout, relaxed atmosphere, and secure parking for a bike. This would have been our 1st choice but when we arrived they only had 1 room available for $44, well out of our range. If you make a reservation you can get into a room in the low 30s but even the dorms are $14.50. I guess you get what you pay for.
We were unable to find the following hotels based on the map in lonely planet (and we really looked so either LP got it wrong, or these places have gone the way of the Dodo): Voyager Int'l Hostel, Marmellena, Anita Inn, and Pension Colon. (we subsequently learned that Anita Inn truly did move and they have a website with the new address, www.spanishpanama.com)
Hope this is helpful.