I agree with most of what's been said. I'm a frequent flyer at Hotel Castillo and an unabashed fan; however, when I return to SJ, I would like to give Dunn Inn a try. Based upon the favorable reports since the big makeover, I believe the Dunn Inn may be another option for me.
With regard to your lodging selection, this is my take:
1. Hotel Castillo is a decent hotel that is nothing fancy, yet tranquil and comfortable. If I had to describe the hotel, I would say it matched my pre-conceived notions of a Costa Rican hotel prior to my first trip. Each room in the old villa has TV, phone and bano... the rooms in the new annex include these amenities plus AC and kitchenette. I have heard complaints from other guests about "moving beds" and "traveling room noise"... but these issues have never really bothered me.

BTW, the hotel offers exceptional discounts for long-term stays and cash payments.
2. Hotel Castillo has a 5-minute advantage when walking to mongering venues like SL, KL & HDR. Castillo is about a 5 minute walk to SL and 10 minutes to HDR/KL. A portion of the stroll from Dunn Inn to these venues is "uphill." Both hotels are located in a "relatively safe" stately, old neighborhood called Barrio Amon. However, always remain alert... expecially during the night... when walking through this neighborhood. A corps of transvestites congregate around Parque Morazan and throughout the barrio when it gets dark. Needless, to say, a taxi is recommended after sundown. Avenida 9, which runs in front of Hotel Castillo is a busy street... while Avenida 11 (in front of Dunn Inn) does not have nearly as much traffic.
3. Darren, Marta and the rest of the staff are superb. I have known them for over 4 years, and as cliche as it sounds... they have always treated me "like family." Marta is an English-speaking tourism professional and is more than happy to fix you up with tours, drivers, rental cars and remote hotel accommodations. Admittedly, I'm not familiar with the staff at Dunn Inn, but I think it's a safe bet that with Boyd at the helm of customer service... you can expect a top-notch operation.
4. Hotel Castillo does not have a bar and restaurant, per se, but is immediately adjacent to one. It's so "adjacent" that the gardens, dining area and outside bar are shared facilities. I always enjoy the morning breakfasts in the gardens with other Castillo guests as well as tipping a few with them at the outside bar later in the day. Unlike Dunn Inn, SL or even La Amistad, Castillo is not in the thick of CRT social activity (which is not necessarily a bad thing.) This hotel seems to attract the more low-key monger who prefers to stay below the radar. From what I've read, Dunn Inn is evolving into another CRT mainstay of sorts... and with the grand opening of the casino around the corner, I'm sure it will be buzzing with activity. Both hotels are definitely chica friendly, but not certain what the latest policies are for soliciting business at the bar.
As someone else mentioned, Hotel La Amistad is another place of accommodation worth a look. The hotel caters to both mongering and mainstream tourists and is conveniently located near SL.