Snug Harbor Resort (1997 Mitchell Bay Rd., 360/378-4762, www.snugresort.com [1]) is a cozy resort along Mitchell Bay on the west side of the island. Choose from a variety of waterfront cabins for $169–229 d. Boat and kayak rentals are available, along with guided kayak trips and whale-watching trips.
I consider Earthbox Motel (410 Spring St., Friday Harbor, 360/378-4000, www.earthboxmotel.com [2], $197–237 d) a very nice motel rather than a hotel per se. When rates are high in the summer, this place may seem a tad overpriced, but relative to the rest of the island it is pretty much on par and the maintenance and cleaning staff does an excellent job. Once you consider the indoor pool, hot tub, sauna, and fitness studio at this centrally located property, it is a decent value. The property also has a two-bedroom house on premises available for $387 per night.
Links:
[1] http://www.snugresort.com
[2] http://www.earthboxmotel.com