Mahabaleshwar or Mahabaleshwar-Panchgani road are the best areas to stay in Mahabaleshwar simply because most of the tourist attractions are in this area.

• You will find most of the better hotels in these two areas.
• If you do not have your own vehicle, hotels arrange for sightseeing taxis having pickup and drop at hotel. Only additional cost will be of travelling within Mahabaleshwar but honestly tourists generally travel only to Venna lake and Market from the hotel.

Mahabaleshwar Market area is city center. Area has ST stand, many hotels and restaurants. Obiviously you can imagine that this place is very convinient for tourists.

Pros:

• Although, this area is crowded, you can find few good quiet hotels in nearby area in walking distance of 5-10 mins.
• Convenient for the tourists not having own vehicle and budget traveller.
• Some mid price range hotels are also good and are popular with the tourists.
• This area has some good low and mid range restaurants.
• You can negotiate price for hotels more than other areas.
• Can easily take a stroll in the evening in Mahabaleshwar Market.

Cons:

• Tourists having own vehicles (and higher budget) have more choices when it comes to quality hotels in other parts of Mahabaleshwar.
• Tourists who do not have own vehicles can still stay in other areas as most of the hotels arrange for Taxi for sightseeing. Only additional cost will be of travelling within Mahabaleshwar but honestly tourists generally travel only to Venna lake and Market from the hotel.

Panchgani has few good hotels mainly because tourist attractions in Panchgani are less than in Mahabaleshwar.

One problem you may face nowadays is that of traffic. If you start from Mahabaleshwar to your Panchgani hotel in the evening, you might get stuck in traffic at 2 places, one at Venna lake and one at Shivaji Chowk (Panchgani). It may take 1 hour to travel 25 km and you might fell exhausted on a trip, you want to relax.

I would still recommend staying in Panchgani as one can find few good hotels deals. However, preferred stay would still be at Mahabaleshwar or Mahabaleshwar-Panchgani road.

No. I would not recommend staying in Tapola or any other place around Mahabaleshwar.

It makes very little sense to stay in Tapola and visit Mahabaleshwar and Panchgani multiple times. Rather you should stay in Mahabaleshwar and visit Tapola for a day trip.