I'd agree with tjj and Evergreen that Stromness is your most convenient stop for the best sites. I stayed at The Ferry Inn last year. It was okay, nothing more - they weren't very flexible with Shetland ferry arrival times (when I was refused a drink at the bar at 11pm) or with early ones either (I had to miss out on breakfast on my last day) and that, with a very indifferent evening meal in the bar, made for a shall we say compromised experience. On my previous visit I stayed at the Stromness Hotel which was more expensive but worth the extra cost, especially if you can get one of the front facing rooms: excellent views. If you can afford it, I recommend staying there.

Kirkwall is a nice town with plenty of good bars to keep you busy in the eve, but the hotels are dearer.