Just returned from Venice 30 days ago after 2 weeks in Italy. Of all the places we stayed in Italy, the best was our hotel in Venice. I HIGHLY recommend Locanda Orseolo www.locandaorseolo.com. Read the reviews of this establishment on www.tripadvisor.com. You can not find a btter place to stay in all of Venice!!
I would highly recommend the famous Gritti Palace. It's right on the Grand Canal. It's truly an an amazing hotel. Definitely one of the best in Europe. The other hotel is the Cipriani Hotel, which is on the Lido. That's a little out of the way. You'll either need to take a water taxi or the public boat system to get anywhere from there. The Gritti Palace is in walking distance to virtually everything. Make sure that you book a room that over looks the canal.