I traveled to Banos with a group of friends in March of 2004. I remember Hostal el Eden as a good deal. I may be mistaken, but I think they might have charged $7 per head. Or maybe it was $7 total, but it's still a great deal in either case. Nothing fancy, but clean, and they had hot water.
I heard from a few people that, while Banos is a popular resort town among all Ecuadorians, it's particularly popular among young adults who are looking for a romantic getaway away from their parents in the city. I'm not sure how true that is, but the walls are pretty thin, and the night before I arrived, my friends were complaining of the evening noises coming from a nearby room. For this reason, this hostal may not be for you if you want a quieter stay (or are bringing children)--or if you want more privacy for yourself.
There's a shared walkway from room to room. We stayed on the second floor, and the walkway is nice to hang out on if you want to look out over the town and surrounding mountains. Also, the showers have VERY hot water (no need to worry about freezing), but they don't have any type of racks inside, so you have to put your toiletries on the floor. The room I stayed in had a small night table, as well as a TV affixed to the wall somewhere up near the cieling. A decent value for an overnight stay, but I would probably look for another place if I were going to stay longer than that.