G'day Mac.
Not sure about where to stay in Melbourne as I live here and don't usually stay in hotels
. However, I have been working at the Melbourne F1GP as an official for the last 12 years and can recommend a few good places to see the race from. If you like the action in pit lane and all the hoopla before the start of the race, then sitting in one of the stands opposite the pits (i.e. Fangio stand) is a good place. The stands at turn 1 and 2 also have a lot of action and good views (Jones or Brabham stands). I have also found turn 16 (final corner - Prost or Senna stands) to be quite good as you see the cars come around turns 15 and 16 onto the main straight or enter the pit lane. Other corners that have reasonably good viewing are turns 3,7 and 10 as well (and have stands you can sit in). I'm probably biased but having attended several other F1GP's I believe the Melbourne GP to be one of the best from a spectator point of view. Hope you have a great time.
Cheers.
George H.