There are two hotels in the Old Town of Quito with this name. We are told that one of them is in a less desirable area. The one we stayed in is on Garcia Morena near Plaza Grande.
The locatiion is excellent as there are a number of restaurants and coffee shops less than 5 minutes walk. Also a number of ATM machines. We moved from the New Town (Mariscal) to the Old Town as we were told it is much safer to walk around, especially after dark. We found this to be true. The Old Town is well lit and there is a large police presence on the streets and in the food courts etc.
La Posada Colonial is a huge building but has only 10 rooms. It has a feeling of being left over from a bygone era and is very ornate. We paid US$44 per night for the two of us and that included breakfast.
The rooms were quite adequate. From what we could tell they all had opening windows to the street. Varying sizes but nothing shoebox size. There was free wireless internet in the hotel. It didn't work in all the rooms but it did work in the dining room etc.
The staff were very helpful. We left luggage here (free of charge) while we went to the Galapagos. When we returned it was already in our room waiting. It was no trouble for them to call taxis at an early hour and there was always someone on hand. Security of the building was excellent. Nobody could walk in off the street after dark
It is to be noted that there are a large number of stairs to get into the hotel and no lift so not so suitable if you are unfit or have any disability.
Whilst we enjoyed staying at this hotel, we found it to be extremely noisey at night. Sleep was interrupted regularly. There was loud music almost every night (we wondered if there was a nightclub close by). Shouting in the streets, taxis beeping their horns etc. If this bothers you, I would suggest you don't stay here.
Otherwise, it was great.

Apparently there are two Posada Colonial's in Quito. This is the one of Garcia Moreno and Mejia Streets one block from the Plaza Grande and sandwiched between two quite upscale hotels, the Plaza Grande and the Patio Andaluz in Quito's colonial "Historic Old Town". We loved this place! The hotel is on the 2nd floor of a beautiful old building, has spacious rooms with high ceilings, some have balconies overlooking the Panicillo hill. The clean rooms surround the hotel's restaurant, a busy lunchtime spot filled with locals enjoying the very reasonable and plentiful almuerzo (a set lunch). In all we got the feeling that the hotel was secondary to the restaurant, but this was just fine with us. The location is perfect for exploring beautiful colonial Quito. If the staff understands your Spanish they are very helpful. At these low prices you might expect a bit of quirkyness. So the shower needs to be explained to you and even then it may take a bit of patience. But the bathroom is spotless. And you need to ring the bell to be let in after returning from dinner because there is no doorman on the first floor. Breakfast consists of Nescafé with hot milk or water and fabulous exotic juice, and American style toast with jam. You can order so-so eggs. And the service is very friendly. Lovely pastries are readily available on the street below.