It's more like a guesthouse than a hostel to me. This is a top-rated specialty lodge on HotelWorld.com, as well as TripAdvisor. My friends recommended me this place, and I was never disappointed. The hostel is located in a quiet area "up the steps", 5 minutes walk from Plaza de Armas. Although climbing up all the stairs seemed to be pretty tough on the first couple of days (with all the altitude sickness and all), but that was no big deal since the hostel's rooftop terrace gives you a gorgeous view of the city. The hostel only has 12 rooms, with and without attached bath. It was totally clean and well-maintained. (My room was EVA, which is quite spacious for a single occupant). The staffs are helpful and friendly, although not all of them speak English. Check out their website for more details.
Directions: Right next door to Hostel Resbalosa.
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Address: Calle Resbalosa 520, San Cristobal, Cusco, 00001, Peru