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Outside of Tbilisi (where there are numerous options for 3 star plus accommodation thanks to the NGO presence in the country) western-style hotels have not made much inroads and crumbling Soviet infrastructure remains the mainstays of most hotels. Accordingly, outside the capital private homes are always the cheapest and most enjoyable option. If you can master a little basic Russian, going to the central square or market will probably land you a lovely big bed and some amazingly fresh home-made food for an agreed price.
Update 2008: A number of high-quality luxury hotels have been opened in Batumi. Additionally a popular skiing resort - Gudauri offers trendy accommodation in a Marco Polo hotel.
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