Quite by accident we found the Old Carnation Hotel. It was new in April 2004 and run by a very friendly family. The beds are comfy with soft duvets, the rooms are set around a courtyard (some with bathrooms and some without) and the prices are less than the Lonely Planet favourites.
It is at 134, Wen Zhi Alley, Wuyi Street about 5 mins east from the Market Square. Apparently there are quite a few new places around this area offering good rates.
The email address of the owner is
yahoo.com.cn|ewan_215