Key West is a fun little party town. if your planning on hitting Duval street hard, I'd suggest getting a place within walking distance of where you plan to party. The part of Duval Street I prefer is the end up by Mallory Square. The area of Duval Street further south favors an alternative life style if you get my drift. I'd suggest staying at Bed and Breakfasts, there are lots of them in Key West, some better than others.
Hotels Key West

Thats a fun place to go.