I would recommend stayong at the hotel, with a few caveats (below).

It is no frills, but safe and clean. The hotel staff is nice and courteous. The location is nice, right on the beachfront. My wife and I stayed there 6 days so far and 3 more, and might come again.

About the beach, I knew ahead of time from my homework on TripAdvisor and book that Playa Municipal (the book that the beach is on) was nothing like Playa La Ropa or other beaches in the area. I found nothing, however, that said it was unsafe. I did find out from a posting on TripAdvisor (someone was asking about water temp and I replied and got 2 knowledgeable replies warning me not to swim there, and confirmed it with a local).

The location is extremely convenient to all of the handicraft shopping in all if Zihua, but then just about everyoine else is too. I have not looked at their rates, but Hotel Zihua Centro is one that I ducked in once, and the lobby was air conditioned and it had an elevator, so if that is of interest to you it might be a bit more money but might be worth it for some. Also, you can probably find a few houtels 2 or more blocks back and save money on this hotel.

The terrace is nice overlooking the ocean. However, most days so far it has been quite loud at night, and way past midnight. This is the last few days of 2010 and the first few of 2011, as well as the peak of the high season, so maybe much of the rest of the time it is quieter.

The beds were quite hard, which did not bother my wfie a bit but did me some.