I don't think there are many places. We went up to visit relatives in Newport a few years ago. I went to Penn State, so I thought I knew what rural was like. Well, I had no idea. That part of Vermont is--well, quiet, which is great if you're seeking peace and tranquillity, but requires a great deal of forethought when traveling with young children. I suggest going all the way to Burlington to spend the night--you'll find lots of good choices there.
The problem here is that you are asking for both good food and a nice place as a combo. That is indeed a very rural stretch, and unless you dip down to Stowe (which is not "between Newport and Burlington"), you aren't likely to find much between Newport and Burlington.
The Eastside Restaurant in Newport serves decent food, though hardly gourmet. The Black Lantern Inn in Montgomery has closed, so that's out....and there's nothing in St. Albans that's "nice" for lodging, just your hum-drum routine roadside chain hotel.
I agree that you might as well go all the way to Burlington.
I have to admit I'm not familiar with that B&B. Jeffersonville itself it very small and quiet (and yes, about one hour from Burlington, maybe slightly less). There aren't a lot of dining options, though there are a couple that offer simple-but-good food.
Assuming that your trip is this summer, you'll also be close enough to drive into Stowe thru Smuggler's Notch if you're looking for a fine dining option above and beyond that which is offered in Jeff.
To end the thread, we stayed in Jeffersonville close to Stow and about an hour away from Burlington at a bed and breakfast called the Donomar Inn. We enjoyed our visit there and meeting the owners. Our room was clean and comfortable and we had a good breakfast. Good value. Jeffersonville is a small artist center and close to the smuggler's notch mountain area.
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