The Hotel Istra looks ok from the outside but the rooms are decidedly old Eastern bloc. True, it's not bad for the price and the hotel is located right there on the harbour front but this is a shabby three star. The rooms are described as above and the beds are singles but not too uncomfortable. It's a good option to go for the half board price because overall it's cheaper than using the mediocre restaurents in Rab. Just don't get excited about the food - it merely serves to stave off the hunger pains.
Rab town is OK but there are lots of tacky shops selling fake designer gear at overinflated prices. The street stalls have some of the most mind-bogglingly terrible art for sale that hte other toursists were actually buying. I had to photgraph it, it was so bad!
You're far better going up the island and getting the ferry to Krk and then the bus to Krk town. This is a much more genuine medaeval town with better food and a good hotel on the harbour. We just caught the last day of their 'Festival of Fish' which was full of (fish) folk-singing, local cheeses, wines and topped off with a firework display. It put Rab in the shade.