It's not so fair to say that I didn't like this place, because I did, but we left after 2 nights (though we stayed in Oaxaca for 8 nights). We had a private room on the first (not ground) floor, though for some reason we were not given the suite that I reserved and paid for. We were put off first by the lack of air-conditioning (it was hot in Oaxaca), and the fact that the bathroom window opened to the upstairs public space, but what decided us to move was the neighborhood. We go out every night; we don't cook dinner at the hostel because we prefer to catch the evening action in the zocalo, plus I don't cook on vacation, and the walk from the centro historico to Azul Cielo is not exactly scary, but unpleasant. On the plus side, the people working there are very nice, very helpful; the atmosphere is lovely; the design and decoration of our room were tasteful except for that bathroom window and breakfast varies daily. Apparently not everyone is bothered by the location; while we were there a group of older travellers around our age were staying also, and in rooms without a private bathroom. We moved to a hotel really not much closer to the zocalo in terms of walking distance, (but much closer to the outer edge of the centro historico) which lacked character but had excellent facilities, was cheaper, and in a much more salubrious neighborhood where eating options were much much closer.
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