If you want to base yourself in the center of Key West town, the Orchid Key Inn is above average. It's on Duval. Walk to everything. Nice couples place, well maintained, clean, has a luxe feel to the rooms. Truly enjoyed staying here.
For eats in KW, check out Santiago's Bodega. Walking distance from Orchid Key Inn. Chill vibe, really superb food, without pretentious trappings. Dinner at the bar was just fine.
If you want a table: reservations; place gets busy.