Im just back from Prague. I realy enjoyed my trip to Prague and here are the best located hostels i have stayed in. The location is very important for me. Its conveniente if you are staying in historical center, you can walk to all sights, bars and clubs. Also do not have to spend extra money for public transport or taxi.
Old Prague Hostel

Any recommendation for centraly located hostel in Krakow and Vienna?
Prague Square Hostel