The Hotel Panamericano (on the north side of the park, tel. 505/722-2355, $6–15) has hot water and additional amenities in a variety of rooms; there are a few interesting animals in captivity here.
Reinel Mendoza Gradiz (tel. 505/2722-2340 or 505/8817-1096, reymen2008 [at] hotmail [dot] com) gives tours, including of the canyon.
The 
Hotel Colonial (half a block south of the church, tel. 505/722-2040, www.hotelcolonialsomoto.com [1], $25) has a new restaurant and large patio, rooms with private bath, cable TV, and parking, with breakfast included.
Hotel El Portal del Angel (one block west, one south of the police station, tel. 505/2722-0244, portalhotel [at] yahoo [dot] com, www.hotelportaldelangel.com [2]) was constructed in 2008 and has sumptuous rooms starting at $35, a restaurant, and an upstairs bar with a nice view of the mountains.
Comedor Soya (on the plaza) serves soy with a smile; all kinds of surprising and cheap meals available. For excellent juice, drinks, snacks, and fries, check out Café Santiaguito (1.5 blocks south of the church). The market is full of other delicious treats, all of them fried.
Comedor Bamby (2.5 blocks west from the Enitel office, 8 a.m.–8 p.m. Mon.–Sat.) is a great place for lunch on just a few dollars. A lunch buffet is served 11 a.m.–2 p.m., or until they run out of food. Many working people in Somoto [3] frequent the spot, so it pays to get there early.
The Almendro (across from the Colonial, open 10 a.m.–9 p.m. daily) was mentioned in a Mejía Godoy song (“el almendro de donde la Tere”) and has nicer meals from $5.
Links:
[1] http://www.hotelcolonialsomoto.com
[2] http://www.hotelportaldelangel.com
[3] http://www.moon.com/destinations/nicaragua/esteli/somoto