My family has stayed at this hotel several times and we've always had a good experience. Right before we went back to Taxco this past month, I read the rest of the reviews on here and got scared -- but my dad booked our rooms at the hotel anyway, and I'm glad he did. It may be a little shabby-looking, but the room was clean, the bed was comfortable, we found no cockroaches, and we had hot water when we were promised hot water. Whenever we asked for something (like an extra towel or toilet paper), we got it pretty quickly. The hotel's location is excellent, right in downtown Taxco, and it's a bargain -- we paid around 30 dollars for a room. The only downside to the great location is that you get some street noise.
If you want to stay in downtown Taxco and are on a budget but don't want to stay in a hostel, Melendez is a good choice. If you are driving to Taxco be aware that there is no parking right at the hotel -- you have to use a city parking garage.