I've been to Key West many times, it is one of my favorite places in the country. I will shamely admit that the first few times I went down there I stayed in hotels... what a mistake!!
The Bed and Breakfast world down there is INCREDIBLE! After 'discovering' the B&B's and little custom inns down there, there is not a better way to do it, period.
Hands down, escape, the best B&B I have found there is called "The Heron House". This place is an absolute hidden jewel!! I stumbled upon it by accident, and although the website and the review (I'm a big 'read reviews before I stay'-kind of person) made it sounds nice, it absolutely blew away my expectations in every way!
The most amazing thing about The Heron House is that it is only 2 blocks from the heart of Duval Street (the main strip where you will spend most of your time, if you weren't aware), so you can literally walk out of your room and within a minute be right at the bottom part (aka: busy part) of Duvall.
Yet, you walk into the gates of the Heron House and it is like going into a portal into another place. There is none of the noise, craziness, and admittedly 'trash' that is so common at that part of the island. I love Key West, it's an incredible place, but it does have its fair share of undesirable qualities.
The Heron House is only made up of about 10 or 12 rooms, all custom designed and absolutely GORGEOUS!! They all surround a beautifully manicured garden and coy-pond with a waterfall in it that really takes your mind away to complete relaxation. They also have a private sundeck on the roof of their lobby, although you do start to lose some of the incredible ambience once you're up there.
To top it off, they serve a 'free' (it's a pretty pricey place, so I put it in quotes as you've already paid for it

) continental breakfast each morning, and then have wine and cheese and crackers every evening. The clientele there was very reflective of what a beautiful place it was, as everyone (and mostly an older crowd there) seemed to mingle and get to know each other through the evening gatherings, which made for a very pleasant feeling while there. It is no surprise that the vast majority of folks there are return guests.
My wife and I stayed there for the first time just a year or so back, and were absolutely STUNNED with how amazing it was!! Words don't even do justice to what an incredible feeling it is to be THAT close to all the craziness and fun of Key West and Duvall Street and yet enter those gates and instantly feel that aura of relaxation that exists inside. The whole place kind of reminded me of a spa, as it had that ambience and feeling inside (robes they give you wear, the sound of the waterfall throughout the garden, a very quiet-appreciating crowd, etc). It was such a bizarre mix of the two extremely different worlds, and yet for the kind of people my wife and I are it was absolutely perfect!!
We will never stay in another place than the Heron House when we go to Key West from now on. It'll cost you a bit, though even that I fund surprisingly impressive considering all you got for the room fee. I've paid much more for rooms in my past, and gotten a lot less.
As you can tell, I absolutely adore this place! And no, I don't own it, nor does anyone I know. I have no invested interest in getting people to go here at all, as a matter of fact as I am writing this I am wondering why I am spilling the beans on this place on a public forum. LOL. It truly is a hidden jewel.
If I had one 'bad' thing to say (and you will see this reflected on some of the reviews it has on websites like trip advisor and stuff) - though I personally didn't find it to be a problem at all - is that the staff there is a bit snooty. The manager and the attendants there are VERY into the place and caring for it (which is why the gardens are so groomed and gorgeous) and they are not very 'catering' to clientele they don't like. Personally, I enjoyed that, as it 'filtered out' guests that weren't a good fit and would be better off in a more rowdy and more common Key West hotel or Inn.
They definitely kind of gave the impression that you needed them though, not that they needed you. heh. Which is a big turnoff for some people, though my wife and I found them to be great people and they were very kind and friendly and helpful to us. As a matter of fact, a hurricane came the last time we were there, and they were wonderful to us with it (giving us input on whether we should leave or stay, and refunded money for the day we chose to left even though we were WAYYY past the deadline etc). We got to know them and enjoyed them a lot, though I could see how some of the people who posted negative reviews about the staff were turned off.
I could not recommend this place anymore, it is absolutely lovely!
BTW--> Someone above mentioned the Marquesa. To my understanding, that is the Heron House's sister property, and it is right across the street. I have heard good things about that place as well, though I have to say it didn't look nearly as unique and manicured and beautiful as the Heron House did. But then again, the Heron House doesn't look spectacular from the outside, it is inside the gates where you find the true beauty of it, and we never made it into Marquesa.
Sorry for the novel-length post, but Im sure most of the folks at this forum are the kind of people who would appreciate the types of things that the Heron House offers (the serenity, the gourmet-feel to it, the gardens, the wine evenings, the personal clientele, etc) and so I thought I'd share my thoughts on it.
Enjoy your trip, Key West is paradise!!

-OTTnMIA
Currently: a Montalcino-addict